Conference Agenda

Austria faces a substantial flood insurance and adaptation protection gap. As a result, after a damaging flood, households and governments need to redirect funding to cover uninsured damages. Households may not be able to afford expensive recovery costs, and governments may need to redirect funds and reduce spending on planned objectives, or increase debt. The resulting indirect impacts caused by slow recovery, increased debt, or redirected government spending, may be prevented by reducing flood risk and/or increasing coverage by insurance. Reducing the flood insurance protection gap in Austria, as in many other countries, can be done by various means, which differ in how flood risk is born and spread amongst the population. This study's objective is to assess these different flood insurance systems that policymakers have at their disposal in terms of their distributional impacts. Potential insurance systems are assessed on whether they are able to provide financial protection for all citizens. This assessment is done by using a partial equilibrium model of the flood insurance sector and by applying spatially detailed data on household income. Results show that improvements in flood protection have short-term benefits to reduce the protection gap, but this strategy becomes less effective due to climate change. Enabling the development of a private flood insurance market is beneficial for higher income households to reduce the financial consequences of a flood, but for lower income households, high costs prove to be a substantial barrier to insurance uptake. Government involvement in the provision of flood insurance is beneficial for ensuring equality regarding the ability to insure against flooding, preventing increasing inequality in flood vulnerability. The Austrian government should maintain insurance uptake requirements and ensure a degree of risk-sharing. A limited degree of risk-reflective pricing is beneficial to stimulate adaptation.