The ACCREU Adaptation Decision Type Workshop on “Flood Risk, Financial Stability, and Flood Insurance” was held on 20 March 2025 as part of the ACCREU project activities. The workshop is part of a series of ACCREU workshops, each focusing on specific adaptation decision types which are subject of specific case studies within the ACCREU project.
Deltares and VU Amsterdam jointly organized this workshop at the premises of the VU Amsterdam and welcomed more than 15 people, both online and in person. This included an important representation of stakeholders linked to one of the following case studies:
- Simulation of private sector adaptation through insurance arrangements by the VU Amsterdam.
- Adaptation options for enhancing financial stability conducted by Deltares.
The ultimate goal of the workshop was to stimulate discussion among stakeholders and identify practical, transferable approaches for strengthening adaptive capacity in the financial and insurance sectors.
Prior to the start of the collaborative workshops, both the research team and present stakeholders presented some of the latest progress in their work. At first, professor Stefano Battistion (UZH) presented the ACCREU’s financial risk model. The financial risk model integrates climate impact models into climate financial risk models, with a focus on physical and geographic exposure; the first results are expected after summer. The methodology—currently under review—integrates a wide range of climate hazards, although data granularity depends on input from partners such as the Joint Research Centre.
Subsequently, the attendants were introduced to the ESG-uptake risk assessment framework by professor Irene Monasterolo (Utrecht University). The project is funded by the EU’s Structural Reform Support and aims to support national competent authorities across EU member states in identifying, monitoring, and managing ESG risks in the financial sector through a supervisory risk assessment framework using public and private ESG data, models, and climate scenarios.
Third, Michiel Ingels presented the VU Amsterdam’s Dynamic Integrated Flood Insurance model. This model assesses climate risk insurance by combining a risk model, an insurance model, and an insurance uptake model to simulate company behaviour across NUTS3 regions under various insurance system designs (e.g. mandatory vs. voluntary, risk-based rate vs. flat rate) and adaptation strategies and helps policymakers understand the challenges of insuring low-probability, high-impact climate events.
Finally, recent work by DNB and Deltares on financial stability implications was briefly summarized. This type of work is characterized by a forward-looking view on potential capital depletion, household risk perception, and the climate protection gap, though it still lacks data on adaptation measures.
After a short break, the collaborative workshop really took off and focused on two main questions:
- Q1: What are examples of climate-finance stresstests within Europe? What are ongoing discussions on this topic (outside of NL)
- Q2: Which transmission channels are likely to have the most impact/are most important?
Concerning the first question, the discussion resulted in many studies to be further investigated by the ACCREU’s research team. Reference was made to studies by the insurance sector (e.g., EIOPA), the Financial Stability Board, and several central banks, for example the Bank of England, Bank of Canada, Deutsche Bundesbank, and others, who all conducted climate stress tests focusing on physical and transition risks. Subsequently, the discussion indicated that many frameworks show various transmission channels for the impact of climate risk on financial stability. However, the magnitude of the impact remains unclear. Further research can provide priority of transmission channels and in turn inform adaptation options.
The latter observation led to a third research question:
- Q3: What are the financial adaptation measures with which biophysical/technical adaptation measures can be complemented. What are the advantages, limits and barriers?
Several financial and insurance adaptation options were presented and discussed in detail. The advantages, limitations, and barriers for financial adaptation options can vary significantly across different entities, such as central banks, companies, governments, and households. Understanding these differences can provide valuable insights into effective adaptation strategies. Additionally, it is important to carefully consider the nuanced implications and the magnitude of these effects, which are still relatively unknown.
The workshop concluded with an open exchange of views on some of the options, their advantages and current barriers are:
- Climate label
- Advantage: Can increase transparency and climate-risk adjusted prices
Barrier: Needs high-quality climate data; may cause distributional impact
Securitization of at-risk loans (make risk tradeable)
Advantage: Transfers risk from banks to willing investors.
Barrier: May decrease transparency; not yet applied to climate risk.
Differentiated pricing or lending standards based on climate risk
Advantage: Can align credit conditions with risk exposure.
Barrier: Needs high-quality climate data; may affect credit accessibility
Capital climate buffers
Advantage: Can enhance financial system resilience to climate shocks.
Barrier: Requires calibration and further research on real economy impact.
Mandatory portfolio diversification
Advantage: Reduces sectoral risk exposure; incentivizes low-risk investments.
Barrier: Needs a climate risk classification system and quality data.