Abstract

The devastating flood event in Western Europa in July 2021 have shown that a majority of flood-affected households is still underinsured and – in case of large damages – dependent on public flood relief. To increase private insurance penetration, a mandatory insurance scheme was proposed. However, private insurance coverage for buildings and belongings may undermine households’ willing-ness to pay and support for flood protection measures at the community level, such as levees, retention basins, or flood-adapted sewage systems. In this study, we use a hypothetical discrete choice experiment to analyze the effects of mandatory insurance for private flood damages on the preferences for a costly flood protection measure with communal benefits. More than 6,000 household heads from Germany participated in the online experiment. The results suggest that the demand for communal flood protection rises with its effectiveness in terms of risk reduction, is negatively associated with its cost, and varies with numerous further explaining variables in plausible ways. However, the existence of a mandatory flood insurance scheme for private damages had no significant effect on the propensity to choose the communal protection measure. Hence, there is no empirical indication that the introduction of a mandatory flood insurance scheme would undermine the support for communal flood risk reduction.

Co authors : Martin Achtnicht and Naufal Alimov

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