Influence of flood risk characteristics on flood insurance demand: a comparison between Germany and the Netherlands

Abstract

The existence of sufficient demand for insurance coverage against infrequent losses is important for the adequate function of insurance markets for natural disaster risks. This study investigates how characteristics of flood risk influence household flood insurance demand based on household surveys undertaken in Germany and the Netherlands. Our analyses confirm the hypothesis that willingness to pay (WTP) for insurance against medium-probability medium-impact flood risk in Germany is higher than WTP for insurance against low-probability high-impact flood risk in the Netherlands. These differences in WTP can be related to differences in flood experience, individual risk perceptions, and the charity hazard. In both countries there is a need to stimulate flood insurance demand if a relevant role of private insurance in flood loss compensation is regarded as desirable, for example, by making flood insurance compulsory or by designing information campaigns

Decision-tree analysis of factors influencing rainfall-related building structure and content damage

“…Cases of fluvial flooding are not included in the data, as these are not commonly covered by property and content insurance policies in the Netherlands (Seifert et al, 2013). Insurers typically compensate for the costs of cleaning, drying and replacing materials and objects, and the costs of temporarily rehousing people.…”

When is it beneficial for insurers to engage in climate change adaptation – a cross country comparison

“…And fifthly, policy-holders or potential policy-holders do not always behave rationally; people tend to underestimate low-probability risks and their need for insurance Kunreuther, 20 1996). Their decision to purchase insurance relies on their risk perception, previous experience, previous provision of governmental loss compensation, and other factors (Seifert et al, 2013). There is a large body of literature studying behavioral determinants of insurance purchase (see e.g.…”

Cost Mitigation of Natural Disasters Through Insurance

“…For insurance markets to function adequately it is imperative that there should be the existence of sufficient demand. Seifert et al (2013) in their study of disaster insurance demand between Germany and Netherland's found that the willingness to pay(WTP) for insurance is lower in Netherlands' for low probability high impact flood than a medium probability medium impact flood in Germany. They concluded that there was a need to make insurance mandatory or design information campaigns.…”