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

Abstract

AbstractIncreased 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.