The floods in Limburg are still etched in everyone's memory. Unfortunately, we will have to deal with floods more often in the future due to climate change. How can private individuals insure themselves now and what is possible in the future? We ask Olivier Platzer, Master's student of Hydraulic Engineering at TU Delft and intern at the Dutch Association. In his graduation thesis, he investigates the possibilities of insuring floods caused by the failure of primary flood defences in the Netherlands.
1. Why are floods caused by the failure of primary flood defences (see box) so difficult to insure?
"The Netherlands is actually an exceptional case. In our country there is an extremely small chance that a flood will occur thanks to our good water protection. But if there is a flood, it immediately has an enormously high impact due to our low location, expensive infrastructure and high population density. In short, there is a low probability, high impact event and that is by definition difficult for insurers. It is then difficult for them to estimate which premium they should charge. In other countries I have researched (UK, US, Spain and Belgium) the artificial protection is often lower, but there is more natural protection. You can think of mountains or at least a landscape with relief. Nowhere does the country consist of flat low-lying polders like ours. As a result, the impact of flooding is often much lower in other countries. The combination of small chance but big consequences is the core of why it just doesn't work here. In addition, a flooding of a primary barrier is such a great risk for insurers that a single insurer cannot cover it. It has to be done in a system, such as a flood pool. The already existing Terrorism Pool (NHT) would be a good example of this."
"The combination of small chance but big consequences is the core of why it just won't work here"
2. In your thesis you write that three pillars play an essential role in the impact of a disaster: prevention, spatial design and crisis management. In your thesis you also introduce a fourth pillar: recovery. Why did you add this fourth pillar?
"At the moment, these three pillars are mainly being looked at, but the recovery through financial compensation has been neglected. This typifies how it is viewed in the Netherlands. There is an explicit urge to promote strengthening water safety systems, while a compensation system, either in the form of insurance or a government benefit, does not get off the ground. One of the arguments of the opponents of a compensation system is that such a financial safety net removes the incentive from the government that ensures that it continues to invest in water safety. However, proponents will argue that the government's duty of care requires it to ensure maximum safety for citizens. In addition, government participation in a compensation system would also provide a financial incentive in which the government benefits from maximum water safety. In my thesis, I try to find out from an objective point of view whether such a fourth pillar, recovery through financial compensation, can be implemented in the traditionally prevention-focused Netherlands."
3. Currently, there are two ways of compensation after flooding. What are they?
"The damage caused by the failure of regional barriers has been included in the majority of home and contents insurance for several years. This means that if damage occurs due to failing regional barriers, it will be paid out by the insurer. On the other hand, you have the current flood system for primary flood defences, included in the Disaster Damage Compensation Act (WTS). The WTS is an instrument with which the government retains all control over what is and is not paid out. It is certain that you will never be paid 100 percent of the damage. In addition, damage by salt water is also excluded. In the event of a major disaster, this creates a great deal of uncertainty for both insurers and victims. Why is there no clear solution to this, I think."
Olivier Platzer is currently following the Master's programme in Civil Engineering, specialising in Hydraulic Engineering at TU Delft. In his graduation thesis, he investigates the possibilities of insuring floods caused by the failure of primary flood defences in the Netherlands. Climate Policy Advisor Timo Brinkman guides him from the Alliance.
Platzer previously studied Civil Engineering, also at TU Delft. In his Bachelor's thesis, he used data analysis to identify errors during the inspection of dikes.
4. How would you rather see it?
"The aim of my research is to compare a number of solutions with each other and to indicate their weaknesses and strengths. This can then serve as a basis for further building on compensation schemes. Options include an improvement to the WTS or a more exotic solution such as a copy of the UK system. The British have set up a separate reinsurance entity (Flood Re). I also investigate the traditional risk pool. In short, my overview will hopefully provide a framework to further think about possible compensation schemes."
5. Finally. What is the core of your research and what research method do you use?
"I first investigated what failure mechanisms are in flood insurance and insurance in general. Seven mechanisms have emerged from this. Moral hazard and anti-selection are well-known examples of this. Moral hazard is the development that people change their behavior after they have taken out insurance. In concrete terms, this means that insured persons become more complacent and take more risks because they are 'insured anyway'. Antiselection means that people who expect to run little or no risk do not insure themselves and people with a high risk do; This causes a higher premium.
The other risks are; risk predictability (it is difficult to predict the risk of flooding), cumulative risk (a flood is directly a mountain of insurance that can be called upon), correlation risk (there is a risk that during a flood there is a high probability that it is not only about flood coverage, but there can also be storm damage, for example), risk perception (risk that people's perception doesn't match the real risk they run) and charity hazard (the government does come to my aid so I don't need insurance).
Then I projected these failure mechanisms onto the countries I'm researching. To assess the impact of these mechanisms, I conducted an Expert Judgement Analysis . I asked ten experts to anonymously assess the risk of the failure mechanisms per system. The participants work at: Allianz, Achmea, Achmea Reinsurance, Aon Reinsurance, De Vereende, the VU and the Delft consultant HKV. I expect to come up with my final conclusions in October."
Primary and secondary (regional) barriers
In his thesis, Platzer investigates the possibilities of insuring floods caused by the failure of primary flood defences in the Netherlands.
A primary flood defence in the Netherlands is a dike that protects against the outside water, as laid down in the Water Act. In the Netherlands there were 3585 km of primary flood defences in 2001. Since 2006, the quays that protect areas in Limburg from the Meuse have also been covered by the primary flood defences.
A secondary (regional) flood defence is a flood defence that does not directly protect the land from the outside water like a primary flood defence. Within a dike ring area there is often a system of regional barriers, these are sometimes mistakenly referred to as secondary flood defences. The characteristic of a regional barrier is that it protects against inland waters and has no national and legal status.
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