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Willingness of homeowners to mitigate climate risk through insurance

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Author Info

  • Botzen, W.J.W.
  • Aerts, J.C.J.H.
  • van den Bergh, J.C.J.M.

Abstract

Climate change is projected to increase flood risks in certain regions due to an increase in both precipitation and sea level rise. In addition, socio-economic scenarios project an increase in urbanization in flood prone areas, which results in a higher damage potential. The combined effect of climate and land use change on flood risks requires innovative adaptation policies to cope with rising risks. Increasingly, attention is paid to the role insurance can play in mitigating damage by providing incentives to policyholders to undertake damage reducing measures. The willingness of homeowners in the Netherlands to undertake measures that mitigate flood damage in exchange for benefits on hypothetical flood insurance policies is examined using surveys. The results indicate that many homeowners are willing to make investments in mitigation. In particular, approximately two-thirds are willing to invest in water barriers in exchange for a premium reduction and about a fifth are willing to replace floor types that are vulnerable to flooding with water resistant floor types. Furthermore, about a quarter are willing to move central heating installations to floors safe against flooding in favor of a reduction in the insurance premium. Estimates of the effectiveness of these mitigation measures to limit potential flood damage in the river delta indicate that prevented damage could be substantial, namely in the order of 1Â billion euro or larger. Reductions in (absolute) flood risk due to mitigation are especially large under climate change. A probit model indicates that existing arrangements for compensating flood damage, risk awareness and perceptions, and geographical characteristics are important determinants in the decision to undertake mitigation.

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Bibliographic Info

Article provided by Elsevier in its journal Ecological Economics.

Volume (Year): 68 (2009)
Issue (Month): 8-9 (June)
Pages: 2265-2277

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Handle: RePEc:eee:ecolec:v:68:y:2009:i:8-9:p:2265-2277

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Web page: http://www.elsevier.com/locate/ecolecon

Related research

Keywords: Climate change Damage mitigation Flood insurance Geographical characteristics Risk perception The Netherlands;

References

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Citations

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Cited by:
  1. Marija Bockarjova & Piet Rietveld & Erik T. Verhoef, 2012. "Composite Valuation of Immaterial Damage in Flooding: Value of Statistical Life, Value of Statistical Evacuation and Value of Statistical Injury," Tinbergen Institute Discussion Papers 12-047/3, Tinbergen Institute.
  2. Kai A. Konrad & Marcel Thum, 2012. "The Role of Economic Policy in Climate Change Adaptation," CESifo Working Paper Series 3959, CESifo Group Munich.
  3. Swenja Surminski & Delioma Oramas-Dorta, 2013. "Do flood insurance schemes in developing countries provide incentives to reduce physical risks?," Grantham Research Institute on Climate Change and the Environment Working Papers 119, Grantham Research Institute on Climate Change and the Environment.
  4. Paul A. Raschky & Reimund Schwarze & Manijeh Schwindt & Ferdinand Zahn, 2010. "Uncertainty of Governmental Relief and the Crowding out of Insurance," Development Research Unit Working Paper Series 05-10, Monash University, Department of Economics.
  5. Swenja Surminski & Jillian Eldridge, 2014. "Flood insurance in England – an assessment of the current and newly proposed insurance scheme in the context of rising flood risk," Grantham Research Institute on Climate Change and the Environment Working Papers 144, Grantham Research Institute on Climate Change and the Environment.
  6. Marcella Veronesi & Fabienne Chawla & Max Maurer & Judit Lienert, 2013. "Climate Change and the Willingness to Pay to Reduce Ecological and Health Risks from Wastewater Flooding in Urban Centers and the Environment," Working Papers 01/2013, University of Verona, Department of Economics.
  7. Paul Raschky & Reimund Schwarze & Manijeh Schwindt & Ferdinand Zahn, 2013. "Uncertainty of Governmental Relief and the Crowding out of Flood Insurance," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 54(2), pages 179-200, February.
  8. Anderson, Blake & M'Gonigle, Michael, 2012. "Does ecological economics have a future?," Ecological Economics, Elsevier, vol. 84(C), pages 37-48.
  9. W. Botzen & J. Aerts & J. Bergh, 2013. "Individual preferences for reducing flood risk to near zero through elevation," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 18(2), pages 229-244, February.
  10. Marija Bockarjova & Piet Rietveld & Erik T. Verhoef, 2012. "Composite Valuation of Immaterial Damage in Flooding: Value of Statistical Life, Value of Statistical Evacuation and Value of Statistical Injury," Tinbergen Institute Discussion Papers 12-047/3, Tinbergen Institute.
  11. Glenk, Klaus & Fischer, Anke, 2010. "Insurance, prevention or just wait and see? Public preferences for water management strategies in the context of climate change," Ecological Economics, Elsevier, vol. 69(11), pages 2279-2291, September.
  12. Botzen, W.J.W. & van den Bergh, J.C.J.M., 2012. "Risk attitudes to low-probability climate change risks: WTP for flood insurance," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 151-166.
  13. Osiel González Dávila & Mavra Stithou & Gianluca Pescaroli & Luca Pietrantoni & Phoebe Koundouri & Pedro Díaz-Simal & Bénédicte Rulleau & Nabil Touli & François Hissel & Edmund Penning-Rowsell, 2013. "Promoting resilient economies by exploring insurance potential for facing coastal flooding and erosion: evidence from Italy, Spain, France and United Kingdom," Grantham Research Institute on Climate Change and the Environment Working Papers 127, Grantham Research Institute on Climate Change and the Environment.

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