Amplifying the contribution of the insurance industry to building resilience

Ramboll has, on behalf of the European Commission and together with the Vrije University in Amsterdam, conducted a study providing an overview of the use of insurance against natural disasters in Europe.

“Climate change is happening, leading to an increase in severe extreme weather events around the globe. In this context, insurance has attracted much attention as a tool for building resilience to such extreme weather events by providing financial compensation for losses and incentives to reduce risk”, says Xavier Le Den, Project Manager, Ramboll Management Consulting.

In this context, the study analyses the cost-effectiveness of the use of insurance against natural disasters and the extent to which it supports damage prevention in 12 EU countries. Building on intensive data collection and broad stakeholder consultations, the study provides an overview over the features of insurance markets that can be considered best practice.

General lack of focus on risk reduction

Generally, the study finds that there is a relative lack of focus on risk reduction in the private property and agricultural sectors of the 12 EU countries. This is especially signified by low insurance penetration rates in private property markets, which is explained by the fact that households do not fully acknowledge the benefits of being insured against extreme weather, or that their willingness to pay is lower than the premiums charged.

High performers bundle insurance products and support public-private partnerships

Nevertheless, the study also uncovered the characteristics of the markets that performed highest in terms of these issues: “We see higher penetration rates and lowered risks in countries that support collaboration between public and private sectors”, says Matilda Persson, Ramboll Water.

As an example of a public-private partnership Matilda mentions a contract between the insurance sector and the government, whereby each group takes actions that maintain the provision of insurance coverage. One specific variation of this, a national pool for catastrophic losses, has for instance been successfully in Denmark.

A main recommendation by this study is therefore for countries to create a national platform that fosters public and private partnerships to develop risk reduction strategies.

Successful collaboration

The project was carried out through a successful open collaboration between Ramboll Management Consulting, providing policy expertise, and Ramboll Water, providing sector expertise, throughout the project period.