Flood insurance systems drive population growth in floodplains

Abstract A substantial literature about future flood risk assessment focuses on changing hazard conditions as a result of climate change, where flood exposure is assumed to remain static or develop according to exogenous scenarios. This study presents an innovative method to project future flood risk by simulating population growth in floodplains, where settlement location decisions of households endogenously depend on environmental and institutional factors, including amenities associated with river proximity, flood risk, and insurance against this risk. Our results show that population growth in floodplains, and consequently rising flood risk, are considerably higher when the disamenity caused by flood risk is offset by insurance. This outcome is particularly evident in countries where flood risk is covered collectively, and notably less where premiums reflect the risk of individual households.