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Natural disasters: Debate about compulsory flood insurance continues

Natural disasters: Debate about compulsory flood insurance continues
Natural disasters: Debate about compulsory flood insurance continues

“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.

Only around half of private buildings in Germany are insured against natural hazards. The states are pushing for compulsory insurance. But this is unlikely to happen any time soon. The federal government is not giving in to the states’ demand for compulsory nationwide insurance against flood and other natural hazards. At a meeting between Chancellor Olaf Scholz (SPD) and the state premiers on Thursday evening, however, it was agreed to continue the discussion.

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 a requirement are insurers, homeowners’ associations and Federal Justice Minister Marco Buschmann (FDP). “The compulsory insurance demanded by the states would make living in Germany more expensive, entail a great deal of bureaucracy and would not relieve the state of financial liability,” Buschmann explained his position.

According to a representative survey conducted by the portal Verivox among private homeowners, the vast majority of them disagree with the top management of the Haus + Grund property 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 survey in May said that insurers should be required to offer all homeowners natural hazard insurance policies. The latter corresponds to the proposal made by Justice Minister Buschmann. Insurers are primarily 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?

The chairman of the Conference of Minister Presidents, Hesse’s Prime Minister Boris Rhein (CDU), stressed on Thursday evening that the states still believe that compulsory insurance is the right thing to do. They would now enter into a working mode together with the federal government to find a solution. Chancellor Scholz recently hinted in the Bundestag that compulsory insurance would be reversed: “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 explained this in more detail: Every homeowner should receive an offer. Existing insurance contracts should be able to be supplemented with natural hazard protection. Offers for new contracts should include natural hazard insurance, “but you can opt out of it”. The insurance association GDV declared this model to be “better than compulsory insurance alone or the partially state-run French natural hazard system”. However, the proposal is far from the requirements of the states.

Source: Stern

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