Compulsory insurance against natural hazards: protection or excessive demands?

Compulsory insurance against natural hazards: protection or excessive demands?

The federal government is planning to introduce compulsory insurance for homeowners against natural hazards. This regulation is intended to cover floods, heavy rain and landslides in particular. In the future, residential building insurance should only be offered with such natural damage coverage. Existing contracts must therefore be supplemented accordingly. Nevertheless, there is resistance: the majority of insurers reject compulsory insurance and see the regulation in such a way that they have to offer cover for natural hazards, but homeowners can reject it. In addition, the federal government is called upon to finally enforce compulsory insurance in order to reduce the financial burden on the federal and state governments that results from the high number of uninsured losses.

Climate change plays a crucial role in this issue. This increases the frequency and intensity of natural hazards, so that damage that was statistically expected to occur every 100 to 200 years now occurs every 2 to 3 years. Residents of regions close to rivers have had to endure increased flooding in recent years. Over 50 percent of homeowners currently have additional insurance against natural hazards, which urgently needs to change. The Union and the SPD have recognized the need for such insurance and are pushing for a solution. Similar models in other EU countries show that compulsory insurance can certainly be implemented positively.

Political discussion and suggestions

The political discussion about the introduction of compulsory insurance against natural hazards is gaining momentum. Although insurers welcome this dialogue, they warn against simple solutions. Elemental protection is anchored in the federal government's coalition agreement, and a comprehensive approach is required to meet the social and financial challenges. Suggestions from the insurance industry include natural hazard insurance with the option of an opt-out. This means that homeowners insurance policies should include natural hazard cover as standard, while homeowners have the option to opt out.

However, opting out of this insurance should be accompanied by a written declaration in which the waiver of state assistance in the event of a claim is stated. The overall approach also includes an overall natural hazards concept that focuses on comprehensive, voluntary insurance coverage with opt-out, binding prevention and adaptation to climate impacts. Legal requirements are necessary to make planning and construction risk-conscious. For example, stopping construction in flood areas could be an important preventative measure.

International models and challenges

An example of an alternative solution could be the British model Flood Re, which enables affordable insurance coverage without mandatory insurance. High-risk contracts benefit from fixed premiums that are below the contributions necessary for the risk, financed by a solidarity contribution from all contracts. These international approaches emphasize the need to focus political attention on prevention and risk transparency. There is a widely recognized need for action by the Federal Government to outline a viable approach that effectively promotes the prevention of natural hazards and adaptation to climate impacts.

The introduction of compulsory insurance could increase insurance density and thus strengthen homeowners' individual freedom of choice. A binding implementation of prevention and adaptation to climate impacts is essential. The insurance industry is ready to contribute to solving this challenge with its know-how and the necessary products. The social idea behind these measures is clear: through joint efforts, we hope to find a sustainable solution to the problems caused by climate change and its effects on people in Germany.