Financial arrangements for disaster losses under climate change, 2005-2011

This project has studied the impact of anthropogenic climate change on the occurrence of losses from extreme weather, and financial arrangements (including insurance) to deal with these losses. The project consisted of four activities: analysis of current financial arrangements; assessment of extreme weather risks; potential of new arrangements; and stakeholder involvement.

An overview has been made of financial arrangements for extreme weather risks in The Netherlands. Especially changes in extreme rainfall and flooding hold severe risks for the national insurance sector. Flood risk transfer mechanisms in Europe have been analysed, and some aspects of private insurance arrangements may hold benefits for reducing flood risks. A global trend of increasing economic losses from weather extremes is occurring because of increases in exposure, related to growth in population and wealth. Future climate change is expected to lead to increasing losses as well. By 2050 hailstorm damages to the agricultural sector could increase by between 25% and more than 200%. A case study along the river Meuse shows that expected losses from river flooding could increase by between 96 and 719%, due to a combination of climate and socioeconomic change. The expected potential number of fatalities from flooding in the west of The Netherlands could quadruple by 2040.

The project results indicate that opportunities may exist for a (partly-) private flood insurance system. Abolishment of the current public compensation system could stimulate the emergence of such a market. This study proposes to insure flood risk in The Netherlands with a public-private partnership in the form of a three-layered insurance programme, including small losses paid by households; reimbursement of the remainder of the damage by the insurance sector; and coverage of very large losses by the government. Many homeowners also appear to be willing to make investments in risk reduction. Estimates of the effectiveness of these mitigation measures on potential flood damage along the rivers are in the order of 1 billion Euros or larger.
This project was commissioned by BSIK, Klimaat voor Ruimte.
Key publications
- Bouwer, L.M., Crompton, R.P., Faust, E., Höppe, P. & Pielke, Jr., R.A. (2007). Confronting disaster losses. Science, 318, 753.
- Botzen, W.J.W., Van den Bergh, J.C.J.M. & Bouwer, L.M. (2010). Climate change and increased risk for the insurance sector: a global perspective and an assessment for the Netherlands. Natural Hazards, 52(3), 577-598.
- Bouwer, L.M. (2011). Have disaster losses increased due to anthropogenic climate change? Bulletin of the American Meteorological Society, 92(1), 39-46.
- Botzen, W.J.W., Aerts, J.C.J.H. and Van den Bergh, J.C.J.M. (2009). Willingness of homeowners to mitigate climate risk through insurance. Ecological Economics, 68(8-9), 2265-2277.
- Botzen, W.J.W., Aerts, J.C.J.H. and Van den Bergh, J.C.J.M. (2009). Dependence of flood risk perceptions on socio-economic and objective risk factors. Water Resources Research, 45, W10440.
- Bouwer, L.M., Bubeck, P. & Aerts, J.C.J.H. (2010). Changes in future flood risk due to climate and development in a Dutch polder area. Global Environmental Change, 20(3), 463-471.

Contact information: Dr. Laurens Bouwer