Proposed Dutch flood pool could provide breakthrough for commercial buyers

Flood insurance has been excluded from Dutch property insurance since devastating floods in 1953, which caused widespread damage and the loss of some 1,800 lives in the Netherlands. The floods cost some €250m at the time and prompted the Dutch government to launch a massive flood defence programme.

Despite the huge investment in flood defences, flood insurance for residential property in the Netherlands has been more or less unavailable for the past 60 years. Although a Lloyd’s-backed coverholder, Neerlandse, did launch a flood insurance product in 2012 for Dutch homeowners, this is the only such product currently on the market.

The rest of the Dutch insurance industry is now looking to resume offering flood insurance backed by a proposed industry pool. Plans are still in their early stages, but would probably involve compulsory flood cover added to homeowners’ policies and the creation of a reinsurance pool, said a spokeswoman for the Dutch Association of Insurers (VVV).

hide

The facility could be ready to launch in 2014, although much work remains to be done, said Hugo Wegbrans, Chief Broking Officer and member of the board of Aon Risk Solutions. The broker is currently working with the VVV, as well as individual insurers and reinsurers, to find a solution to the lack of flood insurance in the Netherlands, he said.

“There have been many attempts in the past to resolve the flood insurance problem, but this time the industry efforts are serious and look promising,” said Marc van Nuland, CEO of Aon Risk Solutions.

The base insurance solution is being developed for residential property risks, but there may be consideration given to extending the pool to larger risks in the future, the VVV spokeswomen said. The solution will also include commercial and agricultural exposures, but with limited loss limits, said Aon.

Flood insurance for large corporates is available in the Netherlands, but is considered limited and too expensive by risk managers.

There has been a longstanding desire by corporate clients to see a solution for flood insurance in the Netherlands, but the fix currently being discussed is unlikely to meet their demands, said Mr Van Nuland. Limits under the facility will be far too low for large corporate buyers, he said.

“There is demand for flood cover from corporate buyers but this solution is rather limited. But it does open up the market to the idea of providing cover. It is a breakthrough but it is not a complete solution for large corporates,” he added.

Modelling for the facility has already begun, said Mr Van Nuland. However, decisions on whether the cover will be compulsory and if there will be any government support will be made at a later date. “Discussions now are focusing on an insurance solution, but personally I believe that the government would need to offer a back-stop,” he said.

The VVV is awaiting the outcome of a review by Dutch competition authorities before taking the proposal further, according to the VVV spokeswomen.

A positive decision is by no means a done deal, said Ralf van Helden, Lloyd’s representative in the Netherlands. The idea of compulsory flood insurance is viewed negatively by many in the Netherlands on the grounds of competition and consumer rights, he said.

“The VVV proposals have yet to overcome some significant challenges,” said Mr Van Helden.

Flood insurance from Neerlandse, which uses a specially created flood risk analysis and pricing tool, has shown that insurers can provide flood cover in the Netherlands, said Mr Van Helden. Compulsory insurance would act as a disincentive for the market to provide solutions and for people to take risk prevention measures, he said.