CAN COASTAL EUROPE INSURE AGAINST CLIMATE CHANGE:

A REVIEW OF EXPERIENCES ON FLOODS AND SHORELINE EROSION

Phoebe Koundouri, Bénédicte Rulleau and Mavra Stithou

Biarritz symposium – 18-21 October 2011

Characteristics of Natural Disaster Risks CC expected to increase the frequency and severity of flooding

in certain regions (IPCC, 2007) Damages from natural disasters in Europe rapidly increased over the

past decades, mainly because of the growth of capital accumulated in flood-prone areas

Socio-economic change and climate change “Risk”

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Severity of Consequences and Economy

Financial &/or technological countermeasures

Disaster loss

Development level

Middle income level economies

Simple economic structures

Complexity of socio-economic structure and interdependency within and across countries increases

Source: Benson and Clay 1998; Lester, 2008; Kellenberg and Mobarak, 2008

3 Biarritz symposium – 18-21 October 2011

The Risk & Perceived Risk-Triangles (Crichton and Mounsey, 1997; Priest, 2003)

Flood frequency and magnitude

Extent of flood impact

Cost of damage or loss

It is the varying perceptions of risk rather than reality of risk that must be managed. For these perceptions to be managed, local knowledge must be acknowledged

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Response of Individuals to Natural Disasters Move out from areas that are at high risk and reallocate in a

safer area Self-protect by building structures less vulnerable to damage Insure by paying a premium in an insurance company

Factors for under-insurance: “this will not happen to me” belief May ignore, knowingly or not, low probability but high consequences

events May be priced out of the insurance market

Highly linked with a recent flood experience

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Response of Firms to Natural Disasters Same here but impacts also relate to human resources,

physical resources, business continuity and disaster recovery plan Vulnerability of small firms

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Response of Governments to Natural Disasters Ex ante public program e.g. well-enforced regulations,

mandatory private disaster insurance, building codes in disaster prone areas, incentives through grants and taxes…

Ex post public program e.g. rehabilitation and recovery, reconstruction

Reinsurance, public-private or national-international partnerships, catastrophe bonds

When not possible to find international reinsurance, self-insurance through budgetary allocation

Interrelationship between individual behaviour and structure of government policies

7 Biarritz symposium – 18-21 October 2011

Roles of Insurance Assist recovery by

Minimizing death, loss and damage Focusing attention on risk Placing the burden of that risk on the hazard zone dwellers

Reduce vulnerability and sensibility by affecting “perceived risk”

Promote resilience

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Roles of Insurance But can also help customers affected by weather events such

as floods by: Managing repair process Bringing in supplies and quality assured repairers Providing for temporary accommodation while repairs are undertaken If part of the cover, providing alternative premises for small business to

run out of while repairs are i,n progress

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Roles of Insurance And can help the society to adapt and become more resilient

(Crichton, 2008): Assistance with identifying areas at risk Catastrophe modelling Economic incentives to discourage construction in flood plain Collection of data on the costs of flood damage to feed into benefit cost

appraisals for flood management schemes Promotion of resilient reinstatement techniques Promotion of temporary defence solutions

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Types of Flood Insurance

Biarritz symposium – 18-21 October 201112

Different countries different home insurance markets where insurance can come bundled with all cover (including flooding), or unbundled (where each component is sold separately) whilst the market may be entirely private, or a state monopoly (Dawson et al. 2011)

Characteristics of Insurance Companies Linked to Natural Disasters Firms may go bankrupt or suffer significant reduction in their

earnings An select to exit a specific area

Increase in the rates charged by insurers Adaptation of the observable patters of natural disasters in

their operational decisions

Challenge in the light of CC = how to deal with a situation where key-epistemological dimension of CC lies in its “never happened before” dimension

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Case Study Experiences

Bordeaux (France), Varna (Bulgaria), Santander (Spain) and Plymouth (UK)

Objective = to derive initial behavioural patterns and investigate the degree of awareness and knowledge on strategies of hedging natural hazards from questionnaire surveys addressed to insurance companies

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