3.8 PRIVATE FLOOD INSURANCE SOCIAL BENEFITS NETHERLANDS AN IM...

8.3.8  Private  Flood  Insurance  Social  Benefits  Netherlands  

An implication for Dutch policy makers is that if they withhold public flood damage compensation, they

can stimulate, (or at least not crowd-out) private flood insurance products (Botzen, 2010). It might be

surmised that a key condition would be to make flood insurance mandatory. Indeed, the proposal from

the Dutch Association of Insurers was predicated on this scenario. They proposed flood insurance be

automatically included as a percentage mark-up on every fire insurance policy in the Netherlands. The

justification for mandatory insurance contained within their proposal was justified by the need to build a

sufficiently large risk community for flood insurance premiums to be affordable and to pay for the

apparent high start-up costs, including developing a comprehensive flood risk model for the

Netherlands. Commercially, this option would make a lot of sense for the insurance industry as they

would be guaranteed substantial industry-wide revenue uplift in the first year alone of in the region of

between 155 and 310 million Euros (ACM, 2013). This considerable amount of money, if rarely paid

out for flood insurance claims - a likely scenario given recent flood history in the Netherlands -, will

profit the insurance sector but not help protect the Netherlands against future flooding. It would be more

economically efficient if this money were spent by the government on strengthening the nation’s flood

defences.

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While a popular option for the insurance industry, objections from consumer groups could be expected,

as in fact was the case. Any mandatory charge would also not be popular among the electorate given

current perception of flood risk and would therefore not receive the necessary political backing. In fact,

before the requested change could be significantly tested ‘in the court of public opinion’, the

Association's proposal was rejected on the grounds that it violated Dutch competition laws. For reasons

of public legitimacy and competition, making flood insurance mandatory while commercially desirable,

is not a realistic condition for the introduction of private insurance to the Netherlands. A free market in

flood insurance, as ruled by the ACM Dutch competition authority, is probably the only acceptable route

for private flood insurance to gain a foothold in the Netherlands.