Damage from weather-related events is expected to increase in the future due to socio-economic growth that increases exposure to natural disasters and anticipated climate change. This paper studies the long-term impacts of climate change and land-use planning on flood risk, with a particular focus on flood risk insurance in the Netherlands. This study estimates the full probability distributions of flood damage under four different scenarios of climate change and socio-economic development for the year 2040. Subsequently, the risk-based (re)insurance premiums for flood coverage are estimated for each of the 53 dyke-ring areas in the Netherlands, using a method that takes into account the insurer's risk aversion to covering uncertain catastrophe risk. On the basis of the results, we can draw four main lessons. First, extreme climate change with a high sea level rise has a higher impact on flood (re)insurance premiums compared with future socio-economic development. Second, (re)insuring large flood losses may become very expensive in the future. Third, a public-private insurance system in which the government acts as a risk-neutral reinsurer of last resort, accompanied by comprehensive adaptation and risk reduction measures, could be a good solution for making flood risk insurance available at an affordable price. Fourth, given the projected increase in flood risk, it is especially important that flood insurance contributes to climate change adaptation.
Paudel, Y; Botzen, WJW; Aerts, JCJH
Influence of climate change and socio-economic development on catastrophe insurance: a case study of flood risk scenarios in the Netherlands
Regional Environmental Change