Addressing Austria’s growing flood risks

by Sébastien Turban

Intense storms have affected central Europe in recent days, causing substantial flooding, including in Austria. Although it is too soon to assess the role of climate change in this particular event, global warming will most likely significantly increase the prevalence of floods in Austria in the future. Austria is particularly exposed to flood risk and its consequences: 15% of built-up land is situated close to a river, the fifth largest percentage in the OECD. Partly in consequence, a larger share of the population is exposed to flood risk than most OECD countries (Maes et al (2022) and Figure 1). Meanwhile a relatively small share of households and businesses take out flood insurance. As discussed in the recent 2024 OECD Economic Survey of Austria (OECD, 2024), reducing the negative impact of frequent and severe floods requires a two-pronged strategy: reducing exposure through better land use and protective investments, and compensating losses through wider insurance coverage.

Figure 1. A large share of the population in Austria is exposed to floods

Share of population exposure to river flooding with a 10-year return period, 2020

Note: A return period is the average or estimated time that a flood event is likely to recur.
Source: IEA/OECD (2023), “Climate-related hazards: River flooding”, Environment Statistics (database), https://oe.cd/dx/58w.

One reason for Austria’s high exposure to flood risk is that a lot of land has been sealed or artificialised in recent years, so called “land take”. Building residential properties on land close to rivers mechanically increases the number of people who can be affected by a flood. Sealing land, for instance through building, can weaken the ground’s capacity to absorb rainwater, thus increasing the risk of flooding. Between 2012 and 2018, the rate of land take was higher than the EU average, relative to country size, and higher than population growth (European Commission, 2022). In October 2021, the Austrian Conference on Spatial Planning was mandated to develop the first Soil Strategy for Austria, which aimed to reduce land take from 11.5 hectares per day to 2.5 in 2030 (Schamann, 2022). The strategy was to be presented at the end of 2022 but has been delayed several times. Therefore, our first recommendation is to Finalise the Soil Strategy, to reduce land take based on a quantitative objective.

Increasing the effectiveness of natural flood protection mechanisms, and deploying structural flood mitigation investments, are key levers to reduce the consequences of floods. Evidence from Austria suggests that forests can reduce run-offs into rivers including after heavy rainfall, thus limiting the risk of flooding (Markart et al., 2022). However, many of Austria’s forests are not in a good shape to perform this role; and there is room for improving their condition. Other nature-based solutions to building flood resilience can complement infrastructure investment in urban areas, such as the “eco-street” project in the municipality of Ober-Grafendorf which provides roadside green spaces to increase water absorption and reduce the run-off of rainwater into the water treatment system. Nature-based solutions are often less costly than infrastructure and can provide additional climate mitigation benefits. However, structural flood mitigation investments, such as dams, levees, and reservoirs, can be particularly cost effective in urban built-up areas. Improvements in drainage systems and the installation of permeable pavement can also improve absorption capacity. One example is the Danube side channel built by Vienna between 1972 and 1988 in order to provide flood relief.

A particular constraint for consistent policy on reducing land take and increasing adaptation investments is that spatial planning, building regulations, and infrastructure investment are typically the responsibility of local authorities. Nationwide regulations on land take could be considered. For instance,  Portugal imposes regulations restricting urban development in areas adjacent to rivers. Incentives to reduce land take and foster investment could also be provided through adjustments in fiscal equalisation transfers (a type of transfers made from central to local government). Adjustment could also be made to the coverage provided by the Austria’s Catastrophes Fund, a public fund financed by federal taxes which pays for preventive and compensation measures against natural catastrophes. Similarly, private investment by households and SMEs in adaptation measures can be incentivised by subsidised loans. In France, adapation measures can be financed by the “fonds de prévention des risques naturels majeurs” which is financed by the “Catnat” premium, a mandatory contribution from all property insurance policies (Covéa, 2023).  

Even with additional preventive measures, some of Austria’s households will remain vulnerable to the consequences of floods when they occur. Expanding the coverage of flood insurance will then be essential to reduce the socioeconomic costs of floods. Today, take up of private insurance coverage against flooding is relatively low in Austria: it has been estimated that the insurance market penetration (measured by the share of assets’ values that are covered by insurance) against river flooding was 5% in Austria in 2022 against 40% in Germany or 100% in France and Switzerland, where coverage is compulsory (Insurance Europe, 2022). Because Austria is highly exposed to future flood risk, an estimation by the European Commission suggests that it has the largest protection gap in the EU (the protection gap provides an estimation of the share of future climate-related disaster losses which is uninsured today) (Radu, 2022).

Enhancing public awareness of flood risk would help raise the take up of insurance. Recent initiatives by the Austrian government have proven particularly helpful. It has developed an online mapping tool, HORA, in collaboration with the Austrian Insurance Association. The tool enables individuals to make an initial assessment of the flood risk of their dwelling. Other informational materials available to the public include CLIMA-MAP, which maps climate change impacts in Austria’s municipalities and regions.

Greater public awareness needs to be accompanied by fundamental changes to flood insurance. The objective should be broad coverage at an affordable price while being able to cover large losses. Experiences from European and OECD countries suggest that this could be achieved by mandating the inclusion of flood insurance as part of general housing insurance products, while providing public reinsurance for catastrophic losses (OECD, 2005; Kuik et al., 2017). In France, for example, private insurers must include insurance against flood risk in property insurance policies. Coverage is funded from a fixed share of all premiums. Insurers in turn benefit from government-backed reinsurance through the “Catnat” system. A state guarantee ensures that damages from extreme events can be covered. Austria could consider an approach along these lines; mandating comprehensive flood insurance in homeowners’ insurance policies and setting the Catastrophes Fund as a public reinsurer.

References

Covéa (2023), “Livre Blanc – Risque Climatique : Quelles préventions ?”, https://www.covea.com/sites/default/files/2023-05/livre_blanc_covea_risque_climatique_quelles_preventions_202305.pdf.

European Commission (2022), “Environmental Implementation Review”, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=comnat%3ASWD_2022_0274_FIN.

Insurance Europe (2022), “Property catastrophe insurance – Austria”, https://assets.foleon.com/eu-central-1/de-uploads-7e3kk3/48290/property_catastrophe_insurance_-_austria.9122c134f1a1.pdf.

Kuik, O. et al. (2017), “Insurance of weather and climate-related disaster risk”, European Commission, https://data.europa.eu/doi/10.2834/40222.

Maes, M. et al. (2022), “Monitoring exposure to climate-related hazards: Indicator methodology and key results”, OECD Environment Working Papers, No. 201, OECD Publishing, Paris, https://doi.org/10.1787/da074cb6-en.

Markart, G. et al. (2022), “Flood Protection by Forests in Alpine Watersheds: Lessons Learned from Austrian Case Studies”, in Protective Forests as Ecosystem-based Solution for Disaster Risk Reduction (Eco-DRR), IntechOpen, https://doi.org/10.5772/intechopen.99507.

OECD (2024), OECD Economic Surveys: Austria 2024, OECD Publishing, Paris, https://doi.org/10.1787/60ea1561-en.

OECD (2005), Catastrophic Risks and Insurance, Policy Issues in Insurance, No. 8, OECD Publishing, Paris, https://doi.org/10.1787/9789264009950-en.

Radu, D. (2022), “Disaster Risk Financing: Limiting the Fiscal Cost of Climate-Related Disasters”, European Commission Discussion Paper 174, https://economy-finance.ec.europa.eu/publications/disaster-risk-financing-limiting-fiscal-cost-climate-related-disasters_en.

Schamann, M. (2022), “First Soil Strategy of Austria”, SURFACE Final Conference, https://www.ufz.de/export/data/464/262037_First%20Soil%20Strategy%20of%20Austria.pdf.