Dutch flood pool could be ratified in June

A proposed flood insurance pool that would allow insurers in the Netherlands to offer flood coverage for the first time since devastating floods hit the region in 1953 could be operational by January 2014 if plans drawn up by a consortium of brokers are ratified by the Dutch authorities at a meeting on June 12.

The creation of the pool could represent an appealing business opportunity for reinsurers as the pool would create one of the biggest catastrophe treaties in the world. The structure of the pool would mean that after an initial retention dealt with by insurers, determined by their market share, the rest of the risk would be transferred into the global reinsurance market.

Unlike similar schemes elsewhere in the world, the scheme would be unlikely to benefit from any government guarantee beyond a certain attachment point.

Paul Miller, head of International Catastrophe Management at Aon Benfield Analytics, said that although there is no guarantee that the pool will be ratified in June the proposal has gone further than any other in recent years. “It would be good to see it go ahead,” he said.

He added that the pool is designed to cover a very high severity, low frequency event with much lower probabilities that most windstorm covers. “This would have to involve a major dyke bursting or a sea surge. These are not things likely to happen easily or often. Holland has some of the best water management systems and flood defences in the world.”

Miller says that as things stand, there is an expectation on the part of many Dutch homeowners that the government would step in and cover a major cat event. “But that is only an assumption; there is no guarantee,” he said. “This pool would represent a real guarantee for homeowners.”

All Dutch insurers that are members of the Dutch Association of Insurers would be required to participate in the pool, which would be managed by ´Stichting NHT´, an entity founded by the Dutch Association of Insurers and which also manages the Nederlandse Herverzekeringsmaatschappij voor Terrorismeschaden NV, the Dutch terror insurance pool formed in May 2003.

The idea would be that all members would immediately be obliged to integrate flood coverage into their standard policies. Whether they increase premiums to reflect this or not would be down to individual companies and competition in the open market.

Despite the Netherlands boasting some of the most sophisticated flood defence systems in the world, flood insurance for residential property has been virtually unavailable since the 1950s. Although Lloyd’s coverholder Neerlandse, which is backed by Kiln, did launch a flood product last year, its reach is limited.

The introduction of this flood cover in 2012 helped intensify the debate over flood risk and in the Netherlands. The Dutch Association of Insurers has been pushing for a solution. Eventually, the three big brokers – Aon Benfield, Guy Carpenter and Willis – were tasked with proposing a solution working together as a consortium. They will also be charged with placing the reinsurance, should the scheme be approved.

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.