Flood Insurance and Flood Risk Reduction

Abstract

The rapid increase in losses from flooding underlines the importance of risk reduction efforts to prevent or at least mitigate the damaging impacts that floods can bring to communities, businesses, and countries. This article provides an overview of how the science of disaster risk management has improved understanding of pre-event risk reduction [or disaster risk reduction (DRR)]. Implementation, however, is still lagging, particularly when compared to expenditure for recovery and repair after a flood event. In response, flood insurance is increasingly being suggested as a potential lever for risk reduction, despite concerns about moral hazard. The article considers the literature that has emerged on this topic and discusses if the conceptual efforts of linking flood insurance and risk reduction have led to practical action. Overall, there is limited evidence of flood insurance effectively promoting risk reduction. To the extent there is, it suggests that more complex behavioral aspects are also at play. Further evidence is required to support this potential role, particularly around data and risk assessment, and the viability of different risk reduction measures.