“Floods of the century” now occur every few years. Many homeowners are not insured against the floods. So far, the state has borne the billions in costs – the states no longer want to do so.
Two weeks after the floods in southern Germany, which caused billions in damage, the prime ministers of the 16 federal states and Federal Chancellor Olaf Scholz (SPD) are discussing compulsory insurance against flooding. The federal states have been calling for the introduction of compulsory insurance for homeowners for a year, but both German insurers and Federal Justice Minister Marco Buschmann (FDP) have rejected this.
Now the federal government is proposing a reverse insurance requirement – not for homeowners, but for insurers: According to this, companies should have to offer a contract to every homeowner who wants to insure themselves against natural hazards. So far, homeowners have often not been able to find insurance for buildings in areas at high risk of flooding that is willing to cover the high risk. But what would such compulsory insurance actually be – and why is it being argued about?
What is a natural hazards policy and what damage does it cover?
Building insurance pays for storm and hail damage, but not for flooding. Natural hazard policies are an additional component of building insurance for other natural hazards, including flooding. But be careful: even a natural hazard policy does not cover all conceivable water damage. If, for example, groundwater flows up into the house through the drain in the laundry room, this is usually considered a construction defect, similar to a leaky roof – and the insurance does not pay.
Why is compulsory insurance being discussed?
Only about half of the private buildings in Germany are insured against natural hazards. According to figures from the GDV, the devastating floods in July 2021 caused almost nine billion euros in insured damage. Including uninsured damage to citizens, companies and public infrastructure, the total damage reached the astronomical sum of 33 billion euros, almost four times the insured amount, according to calculations by the reinsurer Munich Re. So far, the federal and state governments have regularly taken on the role of unofficial insurer after flood disasters and paid billions in aid. Since this is extremely expensive for the state, the states are demanding compulsory insurance.
What are the pros and cons?
There are two points of view: Without financial help, many private homeowners who are currently uninsured would face ruin in the event of a serious flood. Not helping in the event of an emergency would be a lack of solidarity. The counter-argument essentially boils down to the fact that the general public cannot be expected to accept that a large number of uninsured homeowners pass their personal flood risk on to their fellow human beings.
In addition, many municipalities have knowingly designated building areas in flood-prone areas, as flooding is virtually guaranteed there one day or another. And last but not least, the insurance industry fears that the state and citizens would cut back on flood protection after the introduction of compulsory insurance, because the insurance company would always have to pay.
What would this mean for homeowners and renters?
Compulsory insurance for all private homeowners would mean that even those who are not at risk because their houses are far away from any water would have to contribute to the costs. Owners of apartment buildings would presumably want to pass this on to their tenants, including those on the seventh floor, which is guaranteed to be safe from flooding.
Who is against compulsory insurance for homeowners and who is for it?
The main opponents of the obligation are insurers, homeowners’ associations and Justice Minister Buschmann. However, according to a representative survey of private homeowners conducted by the Verivox portal, the vast majority of them disagree with the top management of the Haus + Grund owners’ association: 71 percent of the thousand or so homeowners surveyed believe that compulsory insurance against natural hazards is right. An even larger majority of 81 percent in the May survey said they were in favor of making it compulsory for insurers to offer all homeowners natural hazard policies. The latter corresponds to the proposal made by Justice Minister Buschmann. Above all, insurers are calling for better flood prevention.
And what does “better prevention” mean?
Until the 19th century, many communities kept a safe distance from the water, and rivers and streams were able to spread naturally in wide beds. Today, all of Germany’s large rivers have been straightened, narrowed and channeled, as have many smaller bodies of water. Floodplains have been made usable for agriculture or built on.
“Better prevention” means a variety of possible measures. An obvious and cost-effective step would be building bans in flood zones. But that would be unpopular in the communities. Two weeks ago, Bavaria’s Prime Minister Markus Söder (CSU) called for compulsory insurance for homeowners while rejecting building bans in flood-prone areas. In addition to a building ban in flood areas, other measures that can help prevent flooding include the renovation of neglected dams, the relocation of dikes, the renaturation of former alluvial forests and the construction of large flood polders.
And how does it continue?
Chancellor Scholz recently hinted in the Bundestag at a reversed insurance requirement: “Owners of houses and apartments must be able to insure themselves against natural hazards.” This is an obligation for insurers, but not for homeowners. Justice Minister Buschmann has explained this in more detail: every homeowner should receive an offer. Existing insurance contracts should therefore be able to be supplemented with natural hazards protection. Offers for new contracts should include natural hazards insurance, “but you can opt out of it,” as Buschmann said on Wednesday. The insurance association GDV declared this model to be “better than compulsory insurance alone or the partially state-run French natural hazards system.” However, the proposal is a long way from the federal states’ demand for compulsory insurance for homeowners.
Source: Stern
