Influence of flood risk characteristics on flood insurance demand: a comparison between Germany and the Netherlands

Abstract. The existence of sufficient demand for insurance coverage against infrequent losses is important for the adequate function of insurance markets for natural disaster risks. This study investigates how characteristics of flood risk influence household flood insurance demand based on household surveys undertaken in Germany and the Netherlands. Our analyses confirm the hypothesis that willingness to pay (WTP) for insurance against medium-probability medium-impact flood risk in Germany is higher than WTP for insurance against low-probability high-impact flood risk in the Netherlands. These differences in WTP can be related to differences in flood experience, individual risk perceptions, and the charity hazard. In both countries there is a need to stimulate flood insurance demand if a relevant role of private insurance in flood loss compensation is regarded as desirable, for example, by making flood insurance compulsory or by designing information campaigns.