We need to work together to create solutions for flood risk in the Netherlands

The risk landscape is changing constantly and rapidly, with new threats emerging and others intensifying. The war in the Ukraine is an extreme situation but it also demonstrates how quickly balance and stability can be subverted, with myriad consequences. At the same time, more traditional risks such as natural disasters and severe weather remain and continue to have significant impact. 

According to Munich Re*, insured losses from natural disasters in 2021 reached US $120billion, the joint second-costliest year ever for the insurance sector after the record US $146billion in 2017.

Of course, the COVID-19 pandemic has also dominated our lives over the past two years and, while we appear to have turned a corner in the fight against the disease in 2022, the virus will likely have health, economic, political and security implications for several more years. It has not gone away of course, we’ve seen a recent spike of cases from the Omicron BA.5 subvariant in parts of Europe, despite the warm summer weather. We’ve also seen tough lockdowns enforced once again across China during the spring. So it’s definitely still with us but we are learning to live with it.

The pandemic may have revealed how vulnerable economies and societies can be, but it is only an indicator of what we can expect to come in the future, according to Tom Middendorp, Chairman of the International Military Council on Climate and Security (IMCCS) and former Netherlands Chief of Defence. He was one of the speakers during last year’s Chubb Benelux Risk Forum. His number one priority is to make people aware of climate change from a security perspective as he is convinced it is the biggest game changer this century. 

That’s not difficult to believe if you look at recent events. Last year, the global news was not only dominated by the COVID-19 pandemic, but also by extreme weather events all over the world. Droughts and heatwaves in the US and Greece, wildfires in Siberia, the Mediterranean and California. Hurricane Ida, the fifth strongest storm to ever hit the US mainland. Super Typhoon Rai in the Philippines. Melting glaciers in the Alps, melting permafrost in Russia and the worst floods in 60 years in the South of Sudan. 

We saw also the severe impact climate change can have closer to home. In July last year record rainfall caused flash floods in the Netherlands, Belgium and Germany. They were catastrophic, causing deaths and widespread damage. While the scale of the flooding was massive, the direct impact on individuals was brought home to me by the dreadful experience of one of our colleagues in Belgium. His house was flooded, furniture and other belongings were washed away, and there was no electricity or gas for weeks following the disaster. I was shocked by the damage when I saw it for myself but also warmed by the efforts so many of our colleagues put in to help him and his family in the aftermath of the flooding.

This year, we’ve seen more weather records in terms of early summer high temperatures across much of Europe and devastating floods in Australia, India and Bangladesh. Scientists, reporters and politicians have all highlighted the connection of the floods to global trends in extreme weather. We’ve seen the world focus its attention on climate change with the pledges made by governments at the United Nations Climate Change Conference (better known as COP26) in November. We know from what we are seeing and have experienced that the probability of extreme rainfall and flooding has been increasing significantly, even in places which have not necessarily suffered such events previously. This is especially worrying since insurers in the Netherlands are currently not able to offer comprehensive flood insurance on a large scale.

Many insurers cover damage to homes and business premises caused by extreme rainfall and overflowing smaller rivers such as the Geul and the Gulp, so-called failure of non-primary defences. A lot of people assume that they are also insured against the flooding of the sea or main rivers such as the Maas or Waal. 

Unfortunately, this is not the case. The damage caused by failure of “primary defences” is virtually uninsurable in the Netherlands. The majority of citizens and businesses depend on partial government support based on political decision-making afterwards, via the Disaster Compensation Act (Wts). However, under the Wts, full compensation is never awarded and nothing has been arranged for business interruption outside the agricultural sector. This poses a risk for individuals and companies. In addition, the absence of an agreed claims settlement procedure in the Wts causes delays and unrest and could result in additional consequential damage. This is a frustrating situation for everyone involved, including insurers.

Furthermore, there are companies and institutions who insure themselves against more complex and large financial risks on the co-insurance market through a professional insurance broker. Parties active in the co-insurance market often use the so-called standard Dutch Bourse Conditions which exclude precipitation and flooding risk altogether. An organisation can decide to additionally insure this risk up to a certain limit and for an appropriate premium; it is up to the organisation and its professional broker to make an appropriate assessment. If a company does not insure itself against this risk, it can create distressing situations if it is hit by a flood. This affects not only the entrepreneur, but also the local community that depends on them. 

The fact that our country is virtually uninsured against major flood risks is a big issue, and one that the Dutch insurance industry has been trying to resolve for years now. I am a member of the non-life sector board (sectorbestuur schade) at the Dutch Association of Insurers (‘Verbond van Verzekeraars’). This is a topic we have discussed many times as we look for a workable, effective resolution and we have published a position paper on possible structural solutions, such as a mandatory insurance system based on new insights, or a public-private catastrophe pool.

This is a complicated issue but that does not mean there is no effective answer. While it is encouraging that the Dutch government recently agreed to make a one-off compensation payment to victims of the flooding in Limburg and North Brabant, a viable long-term solution is needed.

The only way to get there is by the insurance industry and the government narrowing the remaining gap between the compensation systems for flood risks by working together.

*https://www.munichre.com/en/company/media-relations/media-information-and-corporate-news/media-information/2022/natural-disaster-losses-2021.html 

Ron Verhulsdonck is Country President Benelux, Chubb