Estimating Flood Insurance Premiums for the residential sector: evidence from Northern Italy

Extreme flood events are becoming more frequent and intense, increasingly challenging the protection of urban areas and the resilience of socio-economic systems. Despite the high exposure of the residential sector and the key role of insurance for risk transfer and financial protection, a large share of buildings in many European countries, including Italy, remains uninsured against natural hazards.

Accurately determining flood insurance premiums for the building stock is a complex task that requires a detailed characterization of flood hazard, building exposure, and vulnerability features. This study presents a methodological framework to support the definition of premium benchmarks, with an application to residential buildings in Northern Italy. High-resolution hazard data are combined with tailored damage modelling tools to assess expected losses, which are subsequently translated into insurance premiums using two alternative redistribution strategies. The first, a targeted approach, assigns losses only to buildings in the inundated areas. The second, a mutuality-based approach, redistributes premiums across a broader spatial domain, including all buildings within the affected municipalities. For each strategy, multiple assumptions regarding loss redistribution are examined to explore their impact on premium calculation, while also considering the typical compensation mechanisms adopted in insurance practice.

Finally, flood premiums are compared with estimates derived for seismic risk in high-hazard zones, highlighting both differences and similarities in insurance mechanisms across these two hazards. The results suggest that integrating flood and seismic risk through multi-risk pooling strategies may contribute to a reduction in insurance premiums.