Climate damage and insurance: Financial experts recommend a mixed system of state and private insurance

Climate damage and insurance: Financial experts recommend a mixed system of state and private insurance

According to a report by www.procontra-online.de, weather extremes such as storms, hail and floods in Germany caused insurance losses amounting to 4.9 billion euros in 2023. This meant that 46 percent of the damaged property owners will be left with their losses. According to the General Association of the German Insurance Industry (GDV), only 54 percent of all residential buildings in Germany have natural hazard insurance, although 99 percent of all residential buildings could be insured. In view of the expected increase in climate damage in the coming years, a study by the Landesbank Baden-Württemberg Research (LBBW) suggests a mixed system of state compulsory natural hazard insurance and private insurance.

According to the LBBW study, compulsory state natural hazard insurance in combination with private policies could be a possible solution. This idea is also supported by the Federal Association of Insured Persons (BdV). The study authors suggest including previously uninsured damage caused by storm surges in the risk catalog of the compulsory insurance system and geographically expanding the allocation of premiums for high-risk properties. Nevertheless, the GDV emphasizes that compulsory insurance alone is not enough to solve the problem. Rather, a rethinking of area and building planning as well as increased prevention measures are required.

As an economic expert, I analyze that the introduction of compulsory state natural hazard insurance in Germany could have a significant impact on the insurance market, consumers and the construction industry. The introduction of such compulsory insurance could lead to an increase in demand for insurance products, which could lead to changes in premiums and insurance conditions. Additionally, this may require adaptation in the construction industry to meet the new requirements for prevention and climate impact adaptation. LBBW's proposals show that a rethinking of natural hazard prevention and insurance obligations is necessary in order to cope with the increasing risks caused by climate change and extreme weather events.