Flood Insurance in Dutch Unembanked Areas: Quantifying the Interplay Between Climate Change, Urban Development, and Adaptation Strategies

Abstract

Many coastal and riverine communities lack dedicated flood protection and face growing flood risk from climate change and urban development. In such areas, flood insurance is one of few mechanisms to manage financial exposure, yet how adaptation measures, participation structures, and infrastructure policy jointly shape long-term insurability is poorly understood. We develop an integrated framework that combines hydrodynamic modelling, damage assessments, and premium estimates to quantify flood risk and insurance viability under coupled climate and socioeconomic change. Applied to unembanked areas in the Rotterdam Metropolitan Region, the Netherlands, we evaluate sea-level rise scenarios (0–2 m), urban development projections and adaptation strategies. Currently, flood insurance is unavailable for unembanked residents in the Netherlands. We therefore investigate whether such a scheme could be viable, what premiums it would imply, and how adaptation would shape its long-term sustainability. Under full participation, risk-based annual premiums covering expected damages and cost of capital would average approximately €50 per household today, but without adaptation could rise to nearly €3000 under high sea-level rise. Beyond 1.0 m sea level rise, the dominant risk driver is no longer gradual climate change itself but its second-order effect on infrastructure policy: storm surge barrier closure thresholds that must rise with the sea. We find that building-level adaptation reduces aggregate damages by up to 60%, but under risk-based participation structures increases individual premiums by shrinking the pool faster than it reduces losses. Our results indicate that flood insurance for unembanked areas could be viable under current conditions, though sustaining manageable premiums over time depends on combining building-level and regional adaptation with risk transfer mechanisms before climate impacts accelerate. The framework is transferable to other coastal and riverine settings facing similar challenges, though flood risk and premium trajectories will vary with local hydrodynamic conditions and how flood damages are allocated among insurers, governments, and households.