FLOODS BRING REFORM MOVES

BRUSSELS, Belgium -- Extensive flooding in Belgium this month, which left significant uninsured personal and business losses, has accelerated moves for a compulsory natural disaster insurance system.

The Belgian government is proposing a system that would require, at a 10% additional premium, flood and earthquake coverage in all underlying commercial property and homeowners policies.

Insurance for flood damage is not widely offered or purchased in Belgium. The few Belgian insurers that do provide flood coverage offer it separately from standard property policies. Therefore, flood insurance typically is considered only by those most at risk, and premiums and deductibles are very high.

"It has been impossible for insurers to offer (flood insurance) on any great scale, as the premium is unbearable," explained Francois de Clippele, a spokesman for Belgium's Centre d'Information de l'Assurance, the country's insurer trade association based in Brussels.

Mr. de Clippele said the new system has the strong backing of the Belgian insurance industry and insurance buyers, who think the mandate will bring more competition to the flood insurance market and give them more choices.

"It will be a very complete coverage and will improve service to policyholders," he said.

The Belgian government has announced it will propose the system to Parliament in the coming weeks. Mr. de Clippele said the proposal must then be debated by Parliament and translated into law, but he is confident a new system will take effect no later than June 1999.

Belgium's personal and small to midsize business insurance buyers are expected to be most affected by the change. However, the system also could make it easier and less expensive for large Belgian commercial businesses to arrange flood coverage, according to Christine Hariga, insurance manager for Belgian national supermarket chain Delhaize "Le Lion" Group, based in Brussels.

Ms. Hariga said many large Belgian corporate buyers, with multiple and complicated risk portfolios, have been able to negotiate flood extensions into their multiline policies.

"Le Lion" Group has negotiated flood extensions, mainly due to its dedicated risk management and prevention programs for flood risks, according to Ms. Hariga. She would not, however, disclose the supermarket chain's insurer or the policy details.

Ms. Hariga expects the compulsory inclusion of flood insurance in property policies to make such coverage more accessible to Belgium businesses. She said the subsequent competition among insurers also should reduce prices and give risk managers more options.

Mr. de Clippele described the new system as a "solidarity" approach to flood coverage, where all policyholders pay the extra premium to spread the cost of flood insurance.

Under the new system, there will be no compulsion to buy fire insurance, but homeowners and companies that do will receive flood and earthquake coverage automatically at the 10% extra premium cost.

Mr. de Clippele said the new system was first proposed by the Belgian insurance industry in 1990 but has been repeatedly stalled by government concerns over the unpopularity of increasing insurance premiums.

This month's flooding, however -- Belgium's worst in 50 years -- heightened public support for the proposal and hastened the government into action, he said.

Weeks of continuous rain in Belgium culminated in widespread flooding, starting Sept. 13 and lasting four days.

The areas hit worst were the provinces of Eastern Flanders, Antwerp, Limburg and Liege. More than 500 buildings, including homes, schools, factories, shops, banks and restaurants, were evacuated. Several flooded towns suffered power and telephone service outages. One death was reported after a motorist skidded into a flooded ditch.

As very few of the affected buildings had coverage for flood damage, major insured losses are not expected.

The Belgian government has released the country's national catastrophe relief fund of 1.2 billion Belgian francs ($34.6 million), but total financial losses resulting from the floods are expected to exceed that. There is currently no estimate of total losses.

Mr. de Clippele said that the catastrophe relief fund, paid for by Belgian taxpayers, has no permanent administration; the compensation process, he said, is slow and complicated. Money from the fund is available only to owners of private homes and does not cover losses experienced by businesses.

Belgium's new, private-sector insurance solution to natural disasters is based on the French CatNat disaster insurance model established in 1982.

As with the French model, the Belgian system will be backed by a state-owned central reinsurance fund.

The reinsurance fund is expected to have limits of 3 billion Belgian francs ($86.5 million) for flood and 10 billion Belgian francs ($288.2 million) for earthquake.

Mr. de Clippele is confident the new system will be a success, but he said a catastrophe occurring early in the life of the new system could hamper the buildup of premium reserves. "We (insurers) need a few years to build up reserves to make the system strong," he said.

Belgium is not known as a high-risk earthquake zone, but there is regular seismic activity. Belgium's most recent earthquake, in Liege in 1983, caused "considerable" damage, Mr. de Clippele said.