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.
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