Governments in many of Europe's largest countries continue to pick up the tab for flood damage, but private insurers could take a bigger role as the trend toward better public sector flood risk management gathers pace, experts say.

In most major European markets, the government provides a backstop for catastrophe insurance, including flood insurance, said Philippe Auzimour, the Paris-based head of the public sector practice in Europe for Marsh Inc. This is through either state-backed pools, such as those in France and Spain, or government compensation funds that control coverage and rates, as is the case in the Netherlands and Austria, he added.

In many European countries, local authorities buy much of their property insurance cover through regional mutual insurers, Mr. Auzimour said. These pools then buy reinsurance for flooding and other catastrophe exposures from the state-backed pools, he added.

Such arrangements have stymied demand for flood insurance outside of Italy, Germany and the United Kingdom, where the coverage is provided mainly by private insurers, Mr. Auzimour said. Such arrangements do not encourage good risk management because some mutual insurers tend to be driven by a need for lower deductibles and high levels of coverage for higher-frequency risks, rather than by an emphasis on greater retention that drives better risk management, he added.

Some experts argue for an increased role for insurers, in the belief that their participation encourages better loss prevention and business continuity planning. Even the European Union has indicated that it would like to see better public sector risk management rewarded with lower catastrophe insurance rates, particularly coverage offered by mutual insurers and state-run pools, Mr. Auzimour said.

In the Netherlands, where as much as 33% of the country is at risk of flooding, the government is looking at ways to develop the flood insurance market, said Marco Zannone, the Hague, Netherlands-based manager of the COT Institute for Safety, Security and Crisis Management, a unit of Aon Netherlands.

There also are moves to improve public sector flood prevention and disaster planning in the Netherlands, and such efforts should encourage insurers to provide flood insurance in the region, Mr. Zannone said. “Insurance stimulates loss prevention measures and disaster planning and is faster at getting investment and rebuilding in the aftermath of a flood,” he added.

In the United Kingdom, where private insurers shoulder much of the flood risk, risk management is more advanced and is improving, said Milan Simic, managing director at AIR Worldwide Ltd. U.K. governments have begun to quantify and analyze flood risk using catastrophe models, such as those developed by modeling companies, including AIR, Mr. Simic said.

More U.K. governmental agencies are using catastrophe models in their efforts to improve flood risk management, mainly to influence the development and planning process and to weigh costs vs. benefits of building flood defenses, he said.

As risk management improves generally across Europe, the role of private insurers could increase, but this is unlikely to happen for at least five to 10 years, Mr. Simic said.

“Risk management will play an increased role in the future, and I expect public sector bodies to carry out more risk assessment and flood risk quantification,” said Mr. Auzimour, who noted that the European Union is working with the Loire Valley Authority in France, which is prone to flooding, to model flood exposure.

As risk analysis increases, public sector bodies also could issue catastrophe bonds, Mr. Simic said. Blue Wings Ltd., a European flood cat bond issued by Allianz S.E. but later canceled because the underlying data was revised and made the coverage uneconomical, showed the potential for flood risk securitization, he said.

“But the public sector is at an early stage in risk quantification, so it makes more sense for local authorities to explore traditional mitigation like insurance,” Mr. Simic said.