The flood protection gap: Evidence for public finances and insurance premiums

Mario Bellia, Erica Francesca Di Girolamo, Andrea Pagano and Marco Petracco Giudici

Risk Management and Insurance Review, 2025, vol. 28, issue 1, 34-66

Abstract: Climate‐related physical risks pose serious concerns for both public and private finances, and it is of utmost importance to contain economic losses when natural catastrophes occur. In this context, this paper models the potential economic impact of currently uninsured flood risks in the EU. It also assesses the potential reduction in economic losses obtainable by increasing the minimum level of flood insurance penetration, and the resulting increment in total premiums required to achieve this objective. First, the paper estimates the share of premiums associated with insured floods events over total property insurance premiums. Then, it investigates the extra premiums needed to close the flood protection gap by requiring all EU countries to reach a minimum level of insurance penetration. Third, the paper proposes a stylised approach to quantify economic losses associated with uninsured flood events at different levels of insurance penetration, allowing to take into account the fact that insurance protection could be partly ineffective due to defaults in the insurance sector. The model can be used to assess the size of the potential contingent loss for public finances if no preventive measures are taken to increase society's resilience against climate and weather‐related risks, and compare it with a safeguard mechanism under an “average” or “worst‐case” scenario. Results show that total insurance premiums collected across the EU should be at least doubled to reach a harmonised level of penetration equal to 75%. Results show that average yearly uninsured losses could amount to EUR 27 billion today. Under an alternative scenario accounting for an increase in insurance penetration, losses would decrease by up to 50%.

Date: 2025
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https://doi.org/10.1111/rmir.70001

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Working Paper: Flood protection gap: evidence for public finances and insurance premiums (2023)
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