Floods: Is there a need for mandatory natural hazard insurance?

Since the catastrophic Elbe floods in 2002, it has been discussed several times: compulsory insurance against natural hazards such as heavy rain, landslides and storm surges. At that time, there was a working group of the federal and state governments, which was then discontinued two years later without any results. After the heavy rain floods that poured into the Ahr Valley in July 2021, the debate came up again. There is now a third attempt – and again it looks as if the insurance requirement will get lost in the political minutiae.

Only every second house has natural hazard insurance

The problem is obvious. Too few houses are insured against natural hazards. Of the 8.5 million building insurance policies, only half include flood protection. Not even houses in particularly vulnerable locations are insured. The higher the risk, the more expensive the insurance. And the price is a deterrent to owners who could particularly urgently need the insurance.

Why so few are insured

Severe flooding does not occur very often, and those affected underestimate such risks. There are psychological reasons for this: the risk seems vague and distant – and therefore not urgent.

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Added to this is the so-called Samaritan dilemma: if a flood disaster occurs, politicians cannot stand on the sidelines and watch. Especially not before elections. “Unbureaucratic help” is also promised – regardless of whether a building was insured. Many private individuals also help by donating.

This often gives homeowners the impression that insurance is not necessary. But if only a few people rely on it, insurance tends to become more expensive. This in turn discourages people from getting insurance at all.

Was that also the case? There are two camps in the debate: some want compulsory insurance, while others just want to create incentives for it.

What speaks for compulsory insurance

What speaks against compulsory insurance

Compulsory insurance: the legal situation

The federal government also believes it is fundamentally possible to introduce compulsory insurance if the insured are classified according to their personal risk and the costs remain reasonable. In its decision on the introduction of nursing care insurance, the Federal Constitutional Court expressly stated that the legislature has leeway when it comes to providing basic services. The ruling could also be applied to natural hazard insurance.

However, the level of costs could still be an issue. The insurance association GDV estimates that, in view of climate change, the cost of insurance could double in just ten years. There are also voices, for example among consumer associations, who fear that insurance will be passed on to rent – and call for social cushioning of insurance premiums. But this could be regulated.

Reinsurance against natural hazards

Insurance companies also take out insurance: In the event of particularly large-scale damage, there are so-called reinsurers who protect normal insurers from being unable to fulfill their obligations.

This was one of the sticking points at the first attempt after the 2002 floods: is the state prepared to assume part of the risk with a guarantee for insurance companies? At the time, a 22 billion euro guarantee was mentioned, which put many politicians off. In view of the recent flood damage, however, this sum may no longer be as daunting as it seems: the federal government has made 15 billion euros available for the Ahr Valley alone.

Natural hazard insurance: the political camp

The federal states in particular are putting pressure on the government: in March 2023, the Bundesrat unanimously decided to “push forward the goal of compulsory natural hazard insurance.” The federal government should quickly propose a nationwide solution. This also has to do with the fact that the states are particularly financially burdened in the event of a flood. In June, it briefly looked as if the government could prevail at the federal-state conference.

The talks preceded the Pentecost floods in Germany. At the beginning of June 2024, Chancellor Olaf Scholz (SPD) himself felt compelled to make the classic Samaritan promise of politics together with Bavaria's Prime Minister Marcus Söder (CSU) in rubber boots and in front of sandbags in Reichertshofen: “We will do everything we can, including with the federal government's resources, to ensure that help can be provided more quickly here.” The time for an obligation, it seemed, was ripe. But the Federal Ministry of Justice is blocking it.

Postponed again – resubmission in October

Minister Marco Buschmann (FDP) is a staunch opponent of compulsory insurance and is considering an obligation to offer insurance. This should simply give insurance companies the reason to offer natural hazard insurance to all homeowners. They can then accept it or not. The states did not want to accept that. In addition, the decision was made at the next federal-state conference on October 8th.

The CDU/CSU parliamentary group in the Bundestag is somewhat in between: unlike the CDU state premiers, it is not one of the supporters of an obligation. However, its proposal in the Bundestag went further than the approach of the Ministry of Justice.

column
A house is an elementary risk

04.09.2021

After the severe storms and floods, an old debate is heating up: Should there be an obligation to insure against natural hazards? But that is actually the wrong question

Imposed instead of merely offered

The Union faction wanted to have natural hazard insurance added to the normal building insurance for all insured persons from a certain date. Owners who did not want this could then opt out “within a certain period of time after being informed of the consequences”. This is the so-called opt-out model.

The current flood situation could give supporters of a requirement a boost. However, it is becoming increasingly unlikely that a solution will be found in this legislative period. After all, no one needs a debate about further obligations during the election campaign. But one thing is largely undisputed: the more homeowners have natural hazard insurance, the better.