Modelling economic risk to sea‐level rise and storms at the coastal margin

Abstract

We develop a methodological approach through integrated assessment using System Dynamics modelling and Scenario Planning to investigate the economic vulnerability of coastal communities to the compounding impacts of sea‐level rise (SLR) and storm flooding and inundation associated with climate change. The approach uses a coastal flood risk assessment that quantifies physical drivers alongside socio‐economic well‐being for coastal communities to provide a methodology for managing uncertain futures through causal relationships in System Dynamics. A New Zealand case study is used to illustrate the long‐term economic impacts of inaction under different SLR projections and recognise critical tolerance thresholds to help exposed property owners plan their future. Modelling scenarios using this integrated approach identified two stand‐out drivers that influence a behavioural response of communities to coastal inundation at the local scale: first, the ongoing likelihood of risk transfer to the insurance industry, and second, the decisions of households and firms to accept risk for the added value of coastal living. Model outputs suggest that the threat posed by coastal hazards drives a behavioural, socio‐economic response that exceeds the initial economic exposure of capital assets. In the economic short term (1–10 years) and medium term (10–20 years), vulnerable communities accept the risk of capital loss and loss of insurability, favouring the amenity of coastal living. However, in the long term (+20 years), economic losses from repeat flooding increase risk‐based insurance premiums, promote insurance withdrawal and drive negative corrections in property valuations. Unanticipated insights were obtained from the modelling, including the likely timing of tolerance thresholds, particularly the insurance withdrawal point, which is critical to insurer/consumer decision‐making and community planning.