Insurance policy

A while back, I picked up on a debate we had with Alex Evans, and particularly the view that weather related disasters in the US and Europe might transform public opinion on climate change. I still take the view that this is unlikely, despite Mayor Bloomberg’s words after Hurricane Sandy slammed into New York earlier this month. I also think that the current flooding in the UK, which is getting worse, is unlikely to have that effect. However, I do think that the floods could have an effect on policy that works through a different routethe insurance industry.

As I’ve argued elsewhere, flooded homeowners don’t constitute a coherent interest group able to press for transformative policy. There are lots of reasons, but one is that they are thousands of scattered individuals, and in the jargon of economics, they find it hard to solve their collective action problem – i.e. getting together and demanding action from government. The insurance industry is a different story – it consists of relatively few very large companies (10 companies have 50% of the market), already organised in groups like the ABI. The industry also takes climate science very seriously, and will have a very clear-eyed view both on likely impacts in the next few years and on the need for mitigation if there is to be a future for insurance. And they are now pressing their case with government, as today’s spat reminds us. The “statement of principles” that at least allows at risk householders to buy insurance, if at a premium, runs out next summer, and if a deal can’t be struck, the resulting crisis will make climate change a much more tangible issue for the wider public. The irony of ironies is that the industry is trying to negotiate with DEFRA, whose newly appointed Secretary of State is climate sceptic Owen Paterson. I suspect that this issue may lead him to change his mind over the next year, exposed to the arguments of an industry led not by ideology but by sheer financial interest.

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