Public–Private Insurance Partnerships for Adapting to Multi-Hazard Climate Change Risks

Project Information

INSUREADAPT

Grant agreement ID: 101086783

DOI

10.3030/101086783

EC signature date 3 April 2023

Start date 1 December 2023

End date 30 November 2028

Funded under

• European Research Council (ERC)

Total cost

€ 1 999 999,00

EU contribution

€ 1 999 999,00

Coordinated by

STICHTING VU
Netherlands

Periodic Reporting for period 1 - INSUREADAPT (Public–Private Insurance Partnerships for Adapting to Multi-Hazard Climate Change Risks)

Reporting period: 2023-12-01 to 2026-05-31

Summary of the context and overall objectives of the project

Natural disasters cause substantial economic losses, which are expected to increase due to climate change. The insurance sector plays a central role in managing these risks. It is thus imperative that insurers accurately assess and address climate risks.

Risk assessment methods currently fall short in accurately understanding climate risks because they focus on single hazards (e.g. floods) instead of correlated multi-hazard risks (e.g. windstorms and floods) affected by climate change. They also insufficiently account for human climate adaptation processes leading to risk reduction, which are characterized by bounded rationality and social interaction. Furthermore, additional insights are needed into how to design insurance arrangements that address climate change and stimulate policyholders to adapt to multi-hazard climate risks by limiting natural disaster damage.

This project aims to design insurance arrangements to enhance policyholders’ adaptation to multi-hazard climate risks by combining financial coverage with comprehensive strategies for stimulating risk reduction. Its interdisciplinary approach goes beyond the state-of-the-art by creating novel multi-hazard climate risk assessments for insurance and by developing agent-based models (ABMs) that account for boundedly rational human adaptation decisions and social interaction. The ABMs evaluate natural disaster insurance arrangements for EU countries with diverse risk contexts and assess strategies for stimulating adaptation by policyholders, based on input from behavioural economic studies. Repeated and real-time surveys and economic experiments will identify comprehensive strategies for triggering behavioural change to stimulate adaptation to the multitude of climate change risks individuals face. These strategies linked to (public–private) insurance combine communication on risk and risk reduction measures, insurance incentives (e.g. deductibles, premium discounts), and nudges.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

The project developed new tools to better understand how people and societies can prepare for climate risks that involve multiple hazards, such as windstorms, river flooding, and coastal flooding occurring together. First, a modelling framework was created to simulate these hazards and how they are connected across space and time. Using historical climate and loss data, the model generates the risk of thousands of realistic future multi-hazard events

Building on this, the project developed a theory of how households make decisions about adapting to climate risks, such as protecting their homes or buying insurance. This theory combines insights from psychology and economics and is tested using surveys and experiments.

An agent-based computer model was then built to simulate millions of households, their locations, their socioeconomic characteristics, and their adaptation and insurance choices. Insurance systems similar to real-world public–private schemes were included to study how insurance and adaptation interact.

The project also designed a new survey instrument and developed an innovative virtual-reality experiment to better understand how people perceive and respond to multiple climate hazards. Finally, the integrated modelling framework was tested in different countries, supporting its broad applicability.

The project has achieved several important results that support its main objectives. First, new research improved understanding of windstorm damage by combining detailed weather data with real insurance loss records. This helps identify which storm characteristics cause the most damage and supports more accurate modelling of windstorm risks.

Second, a comprehensive review of climate risk insurance models identified strengths, gaps, and future needs. This work guides the development of improved insurance models that better reflect real-world systems, include multiple hazards, work at finer spatial scales, and cover a wider range of regions and economic sectors.

Third, a large survey study of more than 5,000 households in Germany showed that people often plan to protect themselves against climate risks but do not always take action. This “intention–behaviour gap” provides key insights into why adaptation measures are delayed or not implemented, helping to design more realistic models of household decision-making.

Fourth, international survey research examined why people choose to relocate from coastal areas facing increasing flood risk due to climate change. The study highlights how relocation decisions depend on risk levels, available adaptation options, and local conditions, and how these drivers differ across countries.

Finally, a review of economic experiments showed how behavioural policies and experiments can provide insights into how to encourage people to better prepare for climate risks, supporting the design of effective strategies to improve disaster preparedness.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

The project has advanced knowledge on the assessment of multiple climate hazards and how people respond to these hazards in important ways. First, research on windstorm impacts combined detailed weather data with insurance loss records to better understand which storm characteristics drive damage. The study also revealed that the level of spatial aggregation matters: analysing data at larger regional scales often provides more reliable insights. These findings improve risk assessment for insurance portfolios.

Second, a comprehensive review of climate risk insurance models identified lessons learned and knowledge gaps. The study confirmed that public–private insurance schemes, multi-risk coverage, and risk-spreading mechanisms are valuable strategies for climate adaptation. At the same time, it highlighted areas where research is lacking, providing guidance for developing improved insurance models within the project and offering a framework for future research.

Third, a survey of German households examined both intentions to adapt to climate risks and the actions actually taken. The research confirmed a large “intention–behaviour gap,” showing that people often plan to take protective measures but do not always implement them. Unexpectedly, the same factors influenced both intentions and actions, suggesting that surveys measuring intentions can still provide useful insights into what drives real-world adaptation. This knowledge helps refine the project’s models of household behaviour.

Fourth, international surveys studied why people decide to relocate from coastal areas at increasing risk of flooding. Findings revealed that relocation decisions are shaped by income, perceptions of risk, response efficacy, social networks, and place attachment. While some drivers are consistent across countries, others vary with local context. The research also highlighted trade-offs between relocating and adapting in place, providing valuable evidence for modelling adaptation strategies in the project.

Finally, a review of economic experiments showed how behavioural policies can encourage households to prepare for disasters. The study highlighted that behavioural public policy strategies can complement traditional financial incentives, and that experimental approaches can address under-researched behaviours, and inform interventions that effectively promote disaster risk reduction. These lessons will guide future research and contribute to broader understanding of behavioural public policies for climate adaptation.