The floods in Rhineland-Palatinate and North Rhine-Westphalia will cost insurers dearly. The GDV trade association expects damages of between four and five billion euros. This is more than what insurers had to pay for the flooding of the Elbe in 2002. This does not include the damage caused by the lower “Bernd” in Bavaria and Saxony.
Yet the payments will not be enough to cover the many damages that people and businesses have suffered. One of the reasons is that not everyone has the necessary additional cover against so-called natural risks. In North Rhine-Westphalia, 47 percent of buildings have this policy, in Rhineland-Palatinate it is only 37 percent.
The situation is completely different in Baden-Württemberg, which has been spared from the current storms. Here, the insurance density is 94 percent. Until 1993, it was compulsory in this state to insure buildings against flooding. It has an effect.
Hearty price supplements
The debate on the introduction of nationally compulsory insurance against natural hazards has long started. It is no coincidence that the Prime Minister of Baden-Württemberg, Winfried Kretschmann (Greens), is among the supporters. Chancellor Angela Merkel (CDU) is opposed to it, as are insurers. They apparently rely on images of full cellars and muddy, destroyed homes to get homeowners to act on their own. Insurers claim that 99% of buildings can be insured if owners want it.
However, it is not taken into account that these insurances are associated with significant price increases in high-risk areas. Another argument that Jörg Asmussen, CEO of GDV, currently uses is that compulsory insurance would deprive homeowners of the incentive to support themselves. Seriously? Most people have invested a lot of sweat and money in their own home. The idea that they fail to secure their home against water ingress seems strange.
The arguments currently being exchanged are the same as after the 2013 floods. At that time, there was also a lot of damage and a heated debate on compulsory insurance. Nothing happened. There is no such thing. Insurance density has increased somewhat, but in many places it is still not high enough.
This time the discussion must not end again – also because climate change will give us more and more extreme weather conditions in the future. Instead of organizing a state aid fund after a flood disaster, there should be fixed structures – in the form of compulsory insurance. It also greatly speeds up payment to those affected.
In the case of compulsory insurance, apartment owners who live on the fourth floor would also be asked to pay. They probably rarely use a utility, but even with them heavy rains can cause a full basement or wash the foundation underneath. And the billions with which the state now supports flood victims are not growing on trees either. Support services will at some point be passed on to the general public in the form of a higher tax burden.
The insurance industry can also play a pioneering role in compulsory insurance. Rather than just arguing why it isn’t working, insurers should be putting their energy into developing a viable solution. High deductibles, stricter building regulations in flood-prone areas, more flood protection measures, and state involvement in assuming risk may be elements of this. There are already models – for example in the neighboring countries of Belgium and France. In this way, insurers could also make an important contribution to reducing the protection gap, that is, the gap between economic and insured damage that they talk about so often.