3.12 Chapter Conclusion
The UK flood insurance market is one of the most free in the world, yet over the last decades it has
resulted in socially unacceptable outcomes which has necessitated intermittent government intervention
in the form of various voluntary agreements. The Statement of Principles in the nineties attempted to
ensure that flood insurance remained affordable. This regime, however, came to be seen as failing both
households that faced steeper flood insurance costs as well as insurance companies that were left at a
competitive disadvantage. Cumulative dissatisfaction from business, government and civil society led to
an agreement in principle to create a new public-private reinsurance pool, 'Flood Re'. This pool is meant
in principle to permit the affordable insurance of high risk properties that, without risk based premiums,
are of limited commercial attractiveness. There are many critics of 'Flood Re' within and outside the
industry who regard it as ignoring the UK’s overall lack of public investment in flood protection measures.
A key lesson therefore to be learned for the introduction of private flood insurance to the Netherlands is
that they must avoid the UK’s lack of joined-up flood governance. As in the UK, there is a risk of moral
hazard on the part of the government if public financial liability for flood compensation is reduced by
private insurance involvement. It is imperative that public and private roles and responsibilities are
clearly demarcated. It would seem prudent that the Dutch government remains responsible for the
investment of public money in new flood protection and that they continue to fund maintenance of
existing infrastructure. The insurance industry should also be properly regulated to ensure that they are
not able to make excessive private profits on the back of decades of public investment in flood
avoidance and protection infrastructure.
A final lesson from the UK is that a private flood compensation system based on purely free market
principles is not likely to lead to economic and social benefits as without some kind of public intervention
or regulation those households that cannot afford flood insurance would be left vulnerable. In the event
of a serious flood, without a system of public compensation, recovery would likely be far slower and
societal welfare losses far greater.
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4 French Flood Insurance
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