ACM: a mandatory flood insurance is not in the interest of consumers

Consumers and business owners should continue to have the freedom to decide for themselves whether or not to take out a flood insurance when taking out a fire insurance. That is the position of the Netherlands Authority for Consumers and Markets (ACM), which can be found in its opinion on a mandatory insurance scheme with regard to mandatory flood coverage, which the Dutch Association of Insurers (VvV) wishes to introduce in 2014.

In a mandatory scheme, insurers, too, will no longer be able to decide for themselves whether or not they wish to offer flood insurances, which is an undesirable situation. If insurers were to pass on to consumers and business owners the costs of the mandatory coverage as proposed by the VvV, it would result in an increase of the financial burden of EUR 155 to 310 million per year, forced upon Dutch consumers and business owners.

‘Introducing a mandatory insurance would restrict consumers’ freedom of choice, and would unnecessarily raise their financial burden, while the proposed insurance scheme does not even satisfy any need,’ says Chris Fonteijn, Chairman of the Board of ACM. ‘Insurers should continue to have the freedom to decide for themselves whether or not they want to offer a flood insurance, and if so, in what form.’

Fifty percent of the Dutch live in areas that are not at risk of flooding. A share of the areas that are prone to floods, the floodplains, is excluded from the coverage in the insurance scheme as proposed by the VvV. Mr. Fonteijn adds: ‘It is not correct to force consumers to pay for a flood insurance when their homes are located in areas that are not even at risk of flooding.’

ACM comes to the conclusion that the mandatory insurance scheme as proposed by the VvV violates competition law because it takes away the freedom of choice of insurers, consumers, and businesses.  Consumers and businesses that do face that risk, and against which they wish to insure themselves, already have sufficient options at their disposal. Moreover, the VvV had claimed that the Dutch government wanted this mandatory insurance scheme to be introduced, but this is not true, according to ACM. After consulting with relevant ministries (Security and Justice, Infrastructure and the Environment, and Finance), it turned out that they do not endorse this insurance scheme. In addition, insurers do not have any statutory tasks or obligations with respect to flood risk coverage.

Finally, there is no national need for a mandatory flood insurance. Having consulted with consumer organizations (the Dutch Consumers Association and the Dutch Homeowners Association VEH) and business interest organizations (The Dutch Association for Small and Medium-Sized Businesses MKB and the Confederation of Netherlands Industry and Employers VNO-NCW), it turns out there is no support for the mandatory insurance scheme.