One in three households can’t afford flood damage as climate change strains insurance

Climate change is increasing flood risks in the Netherlands, threatening households, insurers and the government with rising costs, the Netherlands Bureau for Economic Policy Analysis (CPB) warned Thursday.

One in three households cannot afford flood damage even after insurance and government payouts, the CPB said. Insurers often cover the current value of property instead of replacement costs, leaving families with bills between 12,000 euros and 65,000 euros.

Extreme weather caused 280 million euros in damages last year, according to the Dutch Association of Insurers. A July 2024 downpour in Enschede alone left dozens of homes uninhabitable. Globally, natural disasters caused 270 billion euros in losses in 2024, less than half of which was insured, an international insurer reported.

Who pays for such damage remains unresolved. After a downburst devastated Leersum in 2021, the national government offered no aid, with researchers noting that compensation often depends on media attention and the scale of a disaster. Meanwhile, some countries have already declared high-risk regions uninsurable, and reinsuring against future climate damage is becoming more difficult.

For now, Dutch households share the costs through higher premiums and taxes, a system most people prefer because it keeps coverage relatively affordable in risky areas. But the CPB warned the approach weakens incentives to reduce individual risk. It suggested adjusting premiums or mortgage rates by location to encourage measures such as water-resistant flooring and raised electrical systems.

Government compensation under the Disaster Damage Compensation Act (Wts) is taxpayer-funded, but coverage is incomplete. Water damage qualifies, while wind damage does not, even though scientists expect stronger storms as the climate warms. Researchers say the gap leaves households increasingly exposed.

Fairness is also at issue. In Enschede’s Pathmos neighborhood, residents of social housing — who had no choice in where they lived — were still unable to return to their homes a year after flooding.