The EU faces annual public finance losses of up to €27bn ($29.5bn) due to uninsured flood risks, and total insurance premiums across the EU would need to increase by €10.8bn to achieve a minimum 50% penetration rate.
This is according to study by the European Commission’s Joint Research Centre, published in Risk Management and Insurance Review, that models the economic impact of flood events and the potential savings from higher insurance coverage.
European countries like Germany and Spainhave been exposed to severe floods in recent years, totalling billions in economic losses, with governments often stepping in to cover damage in places with low flood insurance coverage. For example, after the Ahr Valley floods in Germany in 2021, the federal government set up a special €30bn fund to assist the reconstruction effort.
The study estimates that increasing flood insurance penetration to 75% across the EU could reduce public finance losses by up to 50%, even in scenarios where insurers face defaults. Total insurance premiums would need to increase by €19.7bn in total to reach this level of coverage.
Insurance penetration rate for floods in EU countries
Source: European Commission JRC RDH website
The research states that only a quarter of climate-related losses are currently covered by insurance, with significant variation across member states. The Netherlands, Germany, and Italy are among the most exposed to flood risks, with the Netherlands alone accounting for over half of the additional premiums needed to achieve a 75% penetration rate.
Risk-evaluation map for river and coastal floods
Source: European Commission, EIOPA dashboard
The study calls for a combination of insurance-based approaches and adaptation strategies to reduce underlying risks.
