Netherlands

Insurance and Business

Vulnerabilities - The Netherlands

In the Netherlands, the Calamities and Compensation Act (Wet Tegemoetkoming Schade bij rampen en zware ongevallen, in short: WTS) provides legal arrangements for disaster loss compensation In practice, this means that in cases of loss as a result of disasters such as floods, the state aims to compensate the loss using public resources, which derive from tax income and state loans (16).

Insurance policies for households against water damage are integrated in general house insurance. These policies have excluded coverage for damage as a result of flooding. Insurance for damage due to extreme rainfall is now available for 40 % of the insurance policies for households. Only 11 % of these policies are also available for businesses (17). However, since 2004, harvest insurance against extreme rainfall has also been available, supported by the Dutch government by doubling the fund in case of damage, up to a maximum of € 50 million (16).

Insured losses - Globally

Globally, insured and total property losses are rising faster than premiums, population, or economic growth; inflation adjusted economic losses from catastrophic events rose by 8-fold between the 1960s and 1990s and insured losses by 17-fold. Large catastrophic events cause less damage in an average year than the aggregated impacts of relatively small events (a 40/60 ratio globally) (7).

Flood risk insurance in The Netherlands

In the Netherlands, several efforts over the last years to introduce broader flood insurance coverage have failed. The latter is partly due to the extreme low-probability/high-impact nature of flood risks in the Netherlands that results in relatively high premiums for limited commercial flood insurance coverage (18).

In September 2012, a coverholder of Lloyd’s introduced a catastrophe insurance policy in the Netherlands, which allows homeowners to purchase insurance coverage for flood damage bundled with earthquake and terrorism risks. Policyholders receive premium discounts if they take measure to ‘flood-proof’ their home. Flood risk information is provided on the insurer’s website on which individuals can enter their zip code level to access location specific information about flood probabilities, quality of flood defences, potential water levels and the risk-based insurance premium. Four different measures are eligible for a premium discount of 5 % each, namely installing electrical equipment and the central heating installation above the ground floor level, having flood shields available and having a water- resistant floor on the ground floor level, such as tiles (19).

Flood risk insurance in Europe

Insurance can be considered an adaptation strategy since it reduces the follow-on economic impacts of extreme events and thus stabilizes the income and consumption stream of the affected, and thus clearly reduces vulnerability and impacts (14).

Different insurance and compensation systems

Insurance and compensation systems for flood risk in Europe have been divided into three categories (8):

Traditional (private) insurance systems. This system is in place in most European countries (in 15 out of 19 studied countries). Systems are set up and managed by private companies, where the cover is financed from premiums that are paid before the event (ex ante). Some of these systems may have support from the government, for instance through state-guaranteed reinsurance. Countries where at least half the population has taken out flood insurance are: Portugal, Spain, France, the United Kingdom, Hungary, Norway and Sweden. Countries where less than half of the population has taken out flood insurance are: Italy, Greece, Austria, Slovakia, the Czech Republic Germany, Poland, Finland;
Insurance or pooling systems in which the government has a considerable role, through setting up and managing the pool. Cover is provided through ex ante premiums or ex ante taxes on insurance policies. This is the case in Belgium, Denmark and Switzerland. In Belgium, however, a compulsory insurance system has been put in place since late 2005;
Systems administered by the government, consisting of ex post compensation of flood losses. These systems are not considered to be insurance, as the basic property of ex ante premium or tax collection is not present. Rather, loss compensation is paid from tax money, either ad hoc or through budget reservations. Out of 19 studied European countries this system is only in place in the Netherlands.

Insurance markets are rather imperfect and are unlikely to generate adequate adaptation responses to climate risk due to uncertainty and imperfect information, missing and misaligned markets and financial constraints. Government support is therefore necessary and widespread in the EU and elsewhere. Governments of EU member states regulate, subsidize or even offer insurance for flood or drought risks; yet, in many instances markets and public-private partnership offer only limited coverage or are extremely restricted, such as for flood risk in the Netherlands, which leads to substantial government liabilities for member states, which to some extent are buffered by the EU solidarity fund government compensation scheme (9).

The table below summarizes the key properties of insurance and compensation systems for covering losses incurred by households and business in a selection of EU member states (10). Private insurance systems (“bundle system” or the “option system”) are distinguished from government solutions (ex post compensation by the government, paid from tax revenues). The fifth column indicates whether private insurance is compulsory. Finally, the level of market penetration of the insurance system has been estimated.

Member state Insurance/compensation system Insurance compulsory Market penetration Private, ex ante, premium bundled Private, ex ante, premium optional Government, ex post compensation Austria X 10-25% Belgium X X >75% Czech Republic X 25-75% Finland X X 10-25% France X X >75% Germany X X 10-25% Greece X X <10% Hungary X X 40-60% Italy X <10% Netherlands X X <5% Poland X X 25-75% Portugal X 25-75% Spain X X X 25-75% Sweden X X >75% UK X >75%

EU Solidarity Fund (EUSF)

Recognising that floods and other disasters may lead to overburdening national governments and necessitate international assistance even in Europe, the EU Solidarity Fund (EUSF) was created after the floods in central Europe in summer 2002 and entered into force on November 15th of that year (11,15). Member states, and countries applying for accession, can request aid in the event of a major natural or technological disaster (12). The fund provides financial aid for emergency measures in the event of a natural disaster causing direct damages above 3 billion Euros (at 2002 prices) or 0.6% of the GNI (13). Fund support can be mobilized even if the threshold is not met, e.g. for a neighbouring country that is affected by the same major natural disaster or for extraordinary regional disasters which affect the majority of the population of a region and have serious effects on its economic stability and living conditions. There is no equivalent to addressing drought and water scarcity, however (9).

The current EU extreme event interventions are not sufficient to cope with future extreme events projected to increase in size and intensity as a result of climate change (9).

Vulnerabilities - Overview

The insurability of natural disasters and extreme weather events may be affected by increases in the frequency, severity, or unpredictability of these events. ... Climate change presents various challenges to insurability. These include technical and market-based risks (7):

Shortening times between loss events, such as more hurricanes per season,
Changing absolute and relative variability of losses,
Changing structure of types of events,
Shifting spatial distribution of events,
Damages that increase exponentially or nonlinearly with weather intensity,
Widespread geographical simultaneity of losses (e.g. from tidal surges arising from a broad die-off of protective coral reefs or disease outbreaks on multiple continents),
Increased difficulty in anticipating "hot spots" (geographic and demographic) for particular hazards,
More single events with multiple, correlated consequences. This was well evidenced in the pan-European heat catastrophe of 2003. Immediate or delayed impacts included extensive human morbidity and mortality, wildfire, massive crop losses, and the curtailment of electric power plants due to the temperature or lack of cooling water, and
More hybrid events with multiple consequences (e.g. El Nino-related rain, ice storms, floods, mudslides, droughts, and wildfires).

Market-based Risks

Historically-based premiums that lag behind actual losses,
Failing to foresee and keep up with changing customer needs arising from the consequences of climate change,
Unanticipated changes in patterns of claims, and associated difficulty in adjusting pricing and reserve practices to maintain profitability,
Responses of insurance regulators,
Reputation risks falling on insurers who do not, in the eyes of consumers, do enough to prevent losses arising from climate change, and
Stresses unrelated to weather but conspiring with climate change impacts to amplify the net adverse impact. These include draw-downs of capital and surplus due to earthquakes or terrorist attacks and increased competition from self-insurance or other competing methods of risk-spreading.

Pressure on insurance affordability & availability under climate change

Extreme weather events have already precipitated contraction of insurance coverage in some markets, and the process can be expected to continue if the losses from such events increase in the future. Impacts vary, of course, depending on the specific circumstances, and can be relatively minor (gradual price increases) to more significant. For the United States, the following outlook has been presented for different types of issues (7):

Flood - currently a mix of public/private insurance and risk sharing. Under climate change, insurability problems may extend from the present personal and small commercial lines into larger commercial lines.
Windstorm—a largely insured risk at present. There are already considerable insurability problems and associated changes in terms and pricing, non-renewals, market withdrawl, etc. This could increase dramatically under climate change, resulting in shifting of losses to governments and consumers.
Agriculture and livestock—currently a public/private insurance partnership. Climate change will stress this sector considerably, with potential for impacts due to drought, flood, pests, or other events on a scale with the Great Dust Bowl of the 1930s.
Wildfire—currently largely privately insured. More retention of risk by purchasers of insurance and more involvement by state governments is anticipated, while insurers raise deductibles and reduce limits of liability and scope of coverage.
Mold and moisture damage—largely commercially insured until the crisis emerged a few years ago. Now, many states have exclusions.
Earth movement and coastal erosion—primarily insured by government, if at all. With permafrost melt, subsidence of dry soils, sinkholes will become more prevalent, as will mudslides and property losses from coastal erosion. Government programs covering storm-surge-driven losses on eroded property could be overwhelmed with losses under climate change, with the result of more retention by property owners.
Health impacts—currently largely privately insured. An insurability crisis under climate change is not anticipated. Impacts will manifest in the form of elevated health insurance prices.

Vulnerabilities - Europe

It is estimated that losses from weather events are doubling globally every 12 years. Even though the observed increase in losses is dominated by socio-economic factors (such as population growth, increased number of habitations in vulnerable areas, increased wealth, increased amount and value of vulnerable infrastructure), there is evidence that changing patterns of natural disasters are also drivers (1). It is however not known how much of this increase in losses can be attributed to anthropogenic climate change (2). After accounting for changes in population and wealth, it has been shown that changes in extreme weather events may be responsible for a growth in losses by about 2% a year since the 1970s (6).

References

The references below are cited in full in a separate map 'References'. Please click here if you are looking for the full references for the Netherlands.

UNEP FI (2006), in: EEA, JRC and WHO (2008)
Höppe et al.(2006), in: EEA, JRC and WHO (2008)
EEA, JRC and WHO (2008)
Pielke Jr and Downton (2000); Mills (2005); Barredo (2007), in: EEA, JRC and WHO (2008)
Marttila et al. (2005)
Muir-Wood et al. (2006), in: Ward et al. (2008)
Mills et al. (2005)
Bouwer et al. (2007)
Aakre et al. (2010)
Bouwer et al. (2007); CEA (2009); Swiss Re (1998); ISDR (2005); OECD (2005); Paklina (2003), in: Aakre et al. (2010)
EUFR (2004), in: Aakre et al. (2010)
EUFR (2002), in: Aakre et al. (2010)
Council Regulation (2002), in: Aakre et al. (2010)
Linnerooth-Bayer and Mechler (2007), in: Aakre et al. (2010)
Hochrainer et al. (2010)
Keskitalo et al. (2014)
Kok and Lammers (1999), in: Keskitalo et al. (2014)
Paudel et al. (2013), in: Surminski et al. (2015)
Surminski et al. (2015)

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