Partnerships for disaster risk insurance in the EU

Abstract. With increasing costs inflicted by natural hazard perils, and amidst state budget cuts, concerns are mounting about the capacity of governments to design sustainable, equitable and affordable risk management schemes. The participation of the private sector along with the public one through public–private partnerships (PPPs) has gained importance as a means of providing catastrophic natural hazard insurance to address these seemingly conflicting objectives. In 2013 the European Commission launched a wide-ranging consultation about what EU action could be appropriate to improve the performance of insurance markets. Simultaneously, the EU legislator instigated major reforms in the legislation and regulations that pertain to how PPPs are designed or operate. This paper has a dual objective: first, we review and summarize the manifold legal background that influences the provision of insurance against natural catastrophes. Second, we examine how PPPs designed for sharing and transferring risk operate within the European regulatory constraints, illustrated using the example of the UK Flood Reinsurance Scheme (Flood RE) between the state and the Association of British Insurers

Climate-sensitive hydrological drought insurance for irrigated agriculture under deep uncertainty. Insightful results from the Cega River Basin in Spain

This paper assesses the feasibility and robustness of an index-based insurance scheme against hydrological droughts under climate change. To this end, we develop a grand ensemble that samples both modeling and scenario uncertainty in the estimation of the insurance risk premium, so to reveal potential unfavorable surprises and minimize regret in the design of the proposed insurance scheme. The grand ensemble combines four microeconomic models and seven GAMLSS models, which are run for three alternative climate change scenarios: stationary climate/no climate change, RCP 2.6, and RCP 8.5. Methods are illustrated with an application to the Cega River Sub-basin (CRS) in central Spain. Results indicate that for a conventional deductible of 30%, the proposed index-based insurance scheme would be actuarially feasible and affordable under all models for the stationary climate scenario (i.e., robust). For climate change scenarios RCP 2.6 and 8.5 and a 30% deductible, the suggested index-based insurance would be actuarially feasible under most models, albeit some outliers point towards potential unfavorable surprises. Lower deductibles decrease feasibility, particularly for deductibles <10%

Reflections on the current debate on how to link flood insurance and disaster risk reduction in the European Union

Flood insurance differs widely in scope and form across Europe. Against the backdrop of rising flood losses a debate about the role of EU policy in shaping the future of this compensation mechanism is led by policy makers and industry. In this paper we investigate if and how current EU policies influence flood insurance. While the question of supply and demand is at the core of the debate, we argue that another key dimension is often overlooked: how to use insurance as a lever for risk reduction and prevention efforts. We investigate if and how current EU policies interplay with these two dimensions and then reflect on the national policy level. We illustrate two conflicting cases of flood insurance: the United Kingdom (UK), where flood insurance provision is widely available, but subject to current reform, and the Netherlands, where efforts to introduce a broad flood insurance coverage have only recently failed. In analysing the current positions on the role of the EU in shaping flood insurance we conclude that there is wide agreement that a complete harmonisation of flood insurance offering across the EU is unlikely to be effective. We determine that there is clear scope for the EU to play a greater role in linking risk transfer and prevention, beyond existing channels, to ensure an integrated approach to flood risk management across the EU

Economics of Water Security

In the immediate future, accessible runoff of fresh water is unlikely to increase more than the demand forecasted. It will have an impact on economic growth as it may reduce the per capita income of countries and create water conflicts. Such global threat creates a policy conundrum of how to meet basic needs and maximise the benefits from water resources. This chapter investigates different economic instruments in alleviating water-related risks and dealt with associated impacts.Anik Bhaduri, C. Dionisio Pérez-Blanco, Dolores Rey, Sayed Iftekhar, Aditya Kaushik, Alvar Escriva-Bou, Javier Calatrava, David Adamson, Sara Palomo-Hierro, Kelly Jones, Heidi Asbjornsen, Mónica A. Altamirano, Elena Lopez-Gunn, Maksym Polyakov, Mahsa Motlagh, and Maksud Bekchano

Partnerships for disaster risk insurance in the EU

Abstract. With increasing costs inflicted by natural hazard perils, and amidst state budget cuts, concerns are mounting about the capacity of governments to design sustainable, equitable and affordable risk management schemes. The participation of the private sector along with the public one through public–private partnerships (PPPs) has gained importance as a means of providing catastrophic natural hazard insurance to address these seemingly conflicting objectives. In 2013 the European Commission launched a wide-ranging consultation about what EU action could be appropriate to improve the performance of insurance markets. Simultaneously, the EU legislator instigated major reforms in the legislation and regulations that pertain to how PPPs are designed or operate. This paper has a dual objective: first, we review and summarize the manifold legal background that influences the provision of insurance against natural catastrophes. Second, we examine how PPPs designed for sharing and transferring risk operate within the European regulatory constraints, illustrated using the example of the UK Flood Reinsurance Scheme (Flood RE) between the state and the Association of British Insurers

Water Flows in the Economy. An Input-output Framework to Assess Water Productivity in the Castile and León Region (Spain)

Traditionally, water policy has focused on coordinating the public effort required to fuel economic growth by supplying water services demanded as a result of the progress in the many areas of the economy. Under this supply-oriented paradigm, population growth and the improvement of living standards brought about by development have driven water demand up and the pressures over water resources have escalated. The failure to acknowledge the limited availability of water and to decouple economic development from water demand has resulted in a water dependent growth model that in many areas is currently threatened by increasing scarcity and more frequent and intense droughts. Consequently, there is an urgent need to use sparse water resources in a sustainable and efficient way. This demands a comprehensive assessment of water productivity dynamics as well as of the linkages among economic sectors in order to calculate the actual costs of eventual water reallocations to the environment and establish priorities in the design of strategic actions such as river basin or drought management plans. However, available studies only offer static analyses that are insufficient to attain the dual objective of reverting current water scarcity trends without impairing economic growth. This paper develops a methodology based on the Hypothetical Extraction Method to estimate inter-temporal indirect (i.e., including intersectoral linkages) water productivity values. The method is applied in the Spanish region of Castile and León for the period 2000-2006. The intensive use and the low water productivity found for agriculture confirms the intuition that this sector has to play a fundamental role in any water saving policy. However, the relevant linkages between agriculture and the rest of the economy, which acts as an indirect consumer of water for irrigation, may complicate the finding of a Pareto improvement in water allocation. Results also show increasing returns to scale in the manufacturing industry and the service sector, which may be regarded as an evidence of the existence of a Verdoorn’s Law for water

Simple Myths and Basic Maths about Greening Irrigation

Greening the economy is mostly about improving water governance and not only about putting the existing resource saving technical alternatives into practice. Focusing on the second and forgetting the first risks finishing with a highly efficient use of water services at the level of each individual user but with an unsustainable amount of water use for the entire economy. This might be happening already in many places with the modernization of irrigated agriculture, the world’s largest water user and the one offering the most promising water saving opportunities. In spite of high expectations, modern irrigation techniques seem not to be contributing to reduce water scarcity and increase drought resiliency. In fact, according to the little evidence available, in some areas they are resulting in higher water use. Building on basic economic principles this study aims to show the conditions under which this apparently paradoxical outcome, known as the Jevons’ Paradox, might appear. This basic model is expected to serve as guidance for assessing the actual outcomes of increasing irrigation efficiency and to discuss the changes in water governance that would be required for this to make a real contribution to sustainable water management

The Flushing Flow Cost: A Prohibitive River Restoration Alternative? The Case of the Lower Ebro River

Although the effectiveness of flushing floods in restoring basic environmental functions in highly engineered rivers has been extensively tested, the opportunity cost is still considered to represent an important limitation to putting these actions into practice. In this paper, we present a two-stage method for the assessment of the opportunity cost of the periodical release of flushing flows in the lower reaches of rivers with regimes that are basically controlled by series of dams equipped with hydropower generation facilities. The methodology is applied to the Lower Ebro River in Spain. The results show that the cost of the reduced power generation resulting from the implementation of flushing floods is lower than the observed willingness to pay for river restoration programmes