Make climate, cybercrime risks more insurable: Dutch central bank

The insurance industry must make relatively new risks more insurable, said regulator De Nederlandsche Bank (DNB). For example, the increased risk of flooding due to climate change is still difficult to insure. The government can also help by creating more clarity about this, said Maarten Gelderman, division director of supervision at DNB.

Many businesses and households are now completely uninsured against flooding. Damage caused by groundwater penetrating due to heavy rainfall, for example, is insured. But if that rainfall occurs dozens of kilometers away and the excess water is carried by a river and causes damage, that may be uninsured.

“In the case of the floods in Limburg last summer, the government stepped in and was very lenient,” Gelderman said. “But at the same time, the government indicated that this was a one-off.” Many companies and households are unaware of that and, therefore, do not adequately assess the risks. If potential customers realize that insurance is of greater importance, there will be more demand, and the market will be able to develop better.

The problem is similar for cybercrime, said the DNB. Often there is no openness when companies or individuals become victims of this. This makes it difficult to get an idea of the extent of the problem, which means that the need for insurance may not be properly assessed.

The situation is also tricky for insurers because they struggle to estimate the risks and possible costs per case. Gelderman thinks that a public register could help insurers to sharpen their models in this case.

The DNB also said that new technology could put solidarity in the insurance industry under pressure. Using a lot of data and artificial intelligence, among other things, could result in insurers breaking down the risks almost per insured person. That could lead to people no longer being able to insure themselves.

The role of foreign insurers in the Dutch market is also increasing. That has positive aspects, the DNB said, but it also entails risks. Large parties can ensure that certain risks are insurable, whereas an insurer focused only on the Netherlands cannot. But on the other hand, foreign insurers don't always have specific knowledge of the Dutch situation and legislation and regulations.

DNB also sees the risk that foreign parties will take advantage of the market and only offer lucrative insurance policies. That could mean that Dutch insurers would have to bear a larger share of the less profitable insurance policies and could therefore face more difficult times.