3.2 FINANCIAL VIABILITY GOVERNMENTS HAVE MUCH DEEPER AND LOWER CO...

8.3.2  Financial  Viability  

Governments have much deeper and lower cost access to financial markets than private insurers. This

advantage of government is cited by Botzen as a reason why public private systems are more effective.

In a private system, for example the UK system, as there is no state guarantee or a lower cost public

reinsurance option, all the risk is with the private sector. This has resulted in higher priced premiums

than those found in the Belgian and French systems where the private sector risk is limited (Botzen &

Van Den Berg, 2008). A state guarantee offers greater financial stability and resilience compared to a

system without one. In effect the private insurers in France and Belgium rely on the public sector to

function. It might be more economically efficient in the Netherlands where the number of floods is tiny to

not involve the private sector. For one off flood incidents, the costs faced by the government and the

insurance sectors are not different. In fact the transaction costs of administering an entire private

insurance system will be far greater than for the government to put into play an ad hoc flood

compensation arrangement as and when it is needed. This organisation can of course use personnel

who have developed their skills in the private insurance industry or can sub-contract to a single private

insurer to administer claims and assess losses on behalf of the government for the duration of the crisis

recovery period.