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The Demand for Index-Based Flood Insurance in a High-Income Country

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  • Achtnicht Martin

    (Leibniz Institute of Ecological Urban and Regional Development (IOER), Berlin, Germany)

  • Osberghaus Daniel

    (Centre for European Economic Research (ZEW), Mannheim, Germany)

Abstract

Increased flooding is expected to be one of the greatest threats caused by climate change. Flood insurance helps to cope with the risk of flooding, but take-up rates are relatively low in many places. Mainly in developing countries, index-based flood insurance - where the insurer’s payout is based on pre-agreed weather indices instead of actual loss - has been marketed recently. In this paper, we investigate whether the introduction of index-based flood insurance with relatively low premiums is likely to attract new customers in a high-income country, namely Germany. We use data from a discrete choice experiment combined with damage data for a major flood in 2013. We find index-based flood insurance to attract similar customers as traditional damage-based, while the latter is preferred on average. Our results suggest that not many new customers would enter the market, once index-based flood insurance were available.

Suggested Citation

  • Achtnicht Martin & Osberghaus Daniel, 2019. "The Demand for Index-Based Flood Insurance in a High-Income Country," German Economic Review, De Gruyter, vol. 20(2), pages 217-242, May.
    • Handle: RePEc:bpj:germec:v:20:y:2019:i:2:p:217-242
    DOI: 10.1111/geer.12142
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    More about this item

    Keywords

    Adaptation; choice experiment; climate change; flood insurance; flood risk; index-based insurance;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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