Wed 06 Mar 2013 – With the help of some clever technology, Lloyd’s coverholder Neerlandse has shown that it is possible to offer flood insurance in the Netherlands.
The Netherlands boasts some of the most advanced flood defences anywhere in the world, but for the much of past 60 years the country’s homeowners have not been able to buy flood insurance.
That is until last year when Neerlandse, which is backed by Lloyd’s insurer Kiln, began offering flood insurance using an innovative underwriting and risk assessment tool.
With large parts of the country below sea level, the Netherlands is no stranger to flood risk – in 1953 the country was hit by a devastating flood which claimed the lives of 1, 800 people.
Approximately 65% of all homes in the Netherlands – around 4.8 million – are located in areas exposed to flooding, although the probabilities of a large flood are now low. Following the 1953 floods, the country built extensive flood defences – so the largest floodable areas have an estimated flooding probability of one in 8, 000 years or better.
Despite the improvements in flood risk management over the past 60 years, the country’s domestic insurers have yet to resume offering flood insurance, as the government had first hoped.
However, in September 2012, Neerlandse began offering stand-alone flood insurance in the Netherlands, the only flood insurance currently available to homeowners in the country.
The product, which has the backing of the country’s homeowners association, provides protection for flood damage up to €75, 000, more than adequate to cover the average damage to a property from a major flood, explains Kosta Keramopoulos of Neerlandse.
The policy also covers water damage resulting from a failure of flood defences caused by earthquake, an unexploded war-time bomb or an act of terrorism, he says.
The company partnered with leading Dutch engineering company HKV, translating its risk assessment into a web-based insurance solution that can assess and price the risk for an individual property.
Homeowners can also use the Neerlande website to find out if their property is at high or low risk of flooding, and if the risk is high, access information to help reduce their risk. The online underwriting tool combines the flood data from the engineers with mapping technology to produce a risk assessment, and ultimately a premium for an individual property.
“Interest has been huge from the start. In the first month we had over 60, 000 visitors to the website, reading information on flood risk and calculating their own risk profile, ” says Keramopoulos.
Solution to an age old problem
These are exciting times for the insurance market in the Netherlands, says Lloyd’s Country Manager for the Benelux region, Ralph Van Helden. The market has been without adequate flood insurance for some 60 years, but the innovative solution offered by Neerlandse has proved that it is now possible to do so, he says.
“The country is well protected from flood, but underwriters need a mechanism to properly assess and price the risk, ” says Van Helden. “Neerlandse has now done just that. They have found a modern solution to a 60 year problem and shown that flood risk in the Netherlands is insurable, ” he says.
Sparking a debate
The introduction of flood cover by Neerlandse in 2012 helped intensify the debate over flood risk and insurance in the Netherlands.The Dutch Association of Insurers is currently proposing that flood insurance is made a compulsory cover. However, the proposed scheme is insufficient given the size of the exposure and is unlikely to prove popular with the government, competition authorities, nor the public, who view it as an unfair form of taxation, says Keramopoulos.
“In a free market people should not be obliged to purchase flood insurance. It should be an individual’s own decision based on transparent and independent information, ” he says.
Compulsory insurance would also have negative implications for risk awareness and mitigation. According to Keramopoulos, world beating flood defences have created a misleading sense of security and many people in the Netherlands are not well-informed about the dangers of flood risk.
“It is important that people are made aware of the true levels of risk through transparent information and the cost of their insurance. If insurance were to become compulsory there would be no incentives for people to understand the risk, nor to take mitigation measures, ” says Keramopoulos.
(source: Lloyd’s of London site)