3 MARKET PENETRATION IT IS NECESSARY TO UNDERSTAND HOW DIFFER...
2.2.3 Market Penetration
It is necessary to understand how different national flood insurance systems influence insurance
penetration. Penetration includes whether a system covers both domestic and commercial sectors.
Within the domestic sector, to understand the extent of penetration it is important to know if the
insurance system extends to renters as well as owner-occupiers.
As mentioned above, market penetration is highly correlated to a mandatory attribute of flood insurance
systems. For various reasons, a low uptake of flood insurance in low-income populations is the norm
when flood insurance is voluntary. For example, in Germany, where flood insurance is voluntary,
penetration is in the region of five to ten per cent. While this is close to the global average for voluntary
flood insurance (Swiss Re, 2012) it is low compared to other industrialised European countries with
systems with a voluntary character. There are exceptions however, for example, the UK operates a
private and voluntary system of flood insurance yet penetration rates are as high as 95% (Paudel, 2012).
As it is necessary to buy flood insurance to obtain a mortgage in the UK, this type of so called ‘bundled
system’ is considered to be quasi-mandatory rather than truly voluntary.
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This is in accordance with a phenomenon known as risk myopia i.e. those who do not feel the threat of flood risk choose to
opt out of purchasing flood insurance