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					Costs and Benefits of Insurance
against Flood – Case Study of
Wisloka River Basin in Poland
Anna Lasut PhD
IIASA
Research goal



 There is a need to find better
 insurance system against floods in
 Poland.

 An application of Cost-Benefit
 Analysis was designed to compare the
 existing and proposed insurance
 schemes.
     Outline
1.   Flood Risk in Poland and the Case Study Region

2.   Insurace against Floods (status quo and
     concepts)

3.   Methods used to Assess Insurance Schemes

4.   Outcomes of methods
     implelmentation

5.   Concluding remarks


                                                  3
4110 km2 -> 1,3% area of
         2

PL
1,6% of PL flood losses
Basin focus analysis
(61 municipalities)

          Drainage basin of
           Wisloka River
Flood
          Non-reimbursed losses
Risk in   State aid
Poland    Insured losses




                      5
 FLOOD INSURANCE IN PL - Status Quo


     INSURANCE AGAINST NATURAL
         DISASTERS DAMAGES



voluntary insurance   mandatory insurance
                      of buildings in agricultural
                       households „against fire
                          and allied perils”,
                            including flood

                                                 6
90000        PROPERTY (voluntary) insurance: PL - Status Quo
             FLOOD INSURANCE INnumber of insurance contracts
80000
70000
60000
50000
40000
30000
20000
10000
    0
          1959

                   1960

                                 1961

                                               1969

                                                        1970

                                                                1971

                                                                       1972

                                                                               1973

                                                                                        1986

                                                                                                      1995

                                                                                                                    1996

                                                                                                                             1997

                                                                                                                                    1998

                                                                                                                                           2000

                                                                                                                                                   2001

                                                                                                                                                             2002

                                                                                                                                                                           2003
 AGRICULTURE transform acją ustrojow ą
  liczba polis przed                      liczba polis po transform acji ustrojow ej
                     (mandatory) insurance: number of insurance contracts
4500
4000
3500
3000
2500
2000
1500
1000
 500
    0
            1959


                          1961


                                        1969


                                                      1970


                                                               1971


                                                                        1972


                                                                                 1973


                                                                                               1995


                                                                                                             1996


                                                                                                                           1997


                                                                                                                                    1998


                                                                                                                                            2000


                                                                                                                                                      2001


                                                                                                                                                                    2002


                                                                                                                                                                                  2003
    after transformation
 licz b a p o lis p o tr an s fo r m acji u s tr o jo w e j                             licz b a p o listransformation acją u s tr o jaw ą
                                                                                           before p r z e d tr an s fo r m                                                               7
    DIAGNOSIS OF FLOOD INSURANCE IN PL
               low market penetration level

         low level of financial support for the victims

                                high expenses from state
   victims lack the financial
                                 bugdet in case of flood
       security and help
                                        expected
                                  lack of investments in
      lack of capital for
                                     flood protection
        investments
                                        measueres
 premium           no financial incentive to protect the
  do not                         property
depend on
the level of       no financial incentive discouraging
    risk           builing-up in the flood prone areas     8
FEATURES OF PROPOSED INSURANCE SCHEME


 private (households, businesses) and public
 sector property assigned to the flood risk
 zones

 premium is mandatory and risk-based
 (incentive for reducing risk exposure),

 insurance of indirect losses is optional,

 reinsurance is provided but not from the state
 budget
                                             9
   METODOLOGY TO COMPARE INSURANCE
Identification                                    Examples of Land Use costs and
                 Defininition of costs      analysis    Identification of Types
of costs         & benefits categories                              benefits
                                                     Crop land
and benefits                                        Meadows and Pastures
                      Assigning cost and benefits among categories
                                                    Industry
                               for all stakeholders groups and Commerce zones
                                                     Build-up area
                  Proposal of calculation         Review of calculation thanSearch for
                                                     Arable land other       crops
                        method                         methods
                                                     Area 2000x2000        adequate data
                                                                           sources for
                                                                            costs and
                                 Available data
                                                                             benefits

                       Flood area of certain
Calculation                probability
                                                      Estimations of
of costs                                              projected flood
and                      Land use types                   losses
   benefit
                 Loss indicators per area                                   Estimation of
   s
                                               Q50% -> 0,16 mld zł           costs and
                                                                              benefits
                  Historical data about        Q1% -> 2,10 mld zł
                         losses
                                               Q0,2% -> 2,63 mld zł          NPV i BCR
                                                                                           10
OUTCOMES - Scenarios   BCR:
     BCR:               GOVERNMENT
      INSURERS




  BCR: HIGH RISK       BCR: LOW RISK




                               11
        CONCLUSIONS FROM EMPIRICAL RESEARCH

     Decline in the state budget expenditures for
                the recovery payments                    Capital investments
                                                                                             Decline in
                                                                                              poverty
   Premium
   collection
                                                            Quick transfer of
                             Financial means in            financial means to                Decline in
                              mandatory flood                 flood victims                 state budget
Implementation               insurance system                                                expenses
  of mandatory
flood insurance
                                      Means for financing flood            Public property
                                       measures investments              recovery possibility
          Increased social
          awareness about
             the thread                Discouragement to
                                         invest in flood
                                                                                   Min. of indirect
                                          prone areas
                                                                                       losses

Risk-based premium
                               Motivation for taking
                                 the protection            Min. of direct losses
                                    measures
                                                                                       12
CONCLUDING REMARKS
 The performance of CBA in Wisloka River
 basin gave indications for the level of costs
 and benefits for different SHs.
 Application of cost calculation methods and
 data collection strategies were tested.
 The mandatory flood insurance system
 although have some benefits is probably not
 the best insurance option for Poland.
 Options for further research:
    test of other insurance schemes by
 means of this method (and with the use of
 complimentary analysis) in order to find the
 best insurance solution for Poland.
                                                 13
Thank You!

        lasut@iiasa.ac
        .at
                         14

				
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