Too many buildings are still being built on properties that are extremely at risk of flooding: in the past 23 years, 2.7 million new homes have been built in Germany, 32,000 of them in very high-risk areas. This was calculated by the General Association of the German Insurance Industry (GDV). There are a total of 338,000 residential buildings in Germany in high-risk areas. “We are of the opinion that new buildings should not be built in flood areas,” says GDV General Manager Jörg Asmussen.
The industry association is now demanding that the concept of “climate-adapted construction” be included in the building legislation. Prevention and climate adaptation are important so that damage caused by natural hazards and thus insurance premiums do not get out of hand financially. Because climate change is creating enormous challenges for the industry: Disasters are becoming more expensive, also because many houses are being built in endangered areas. One example is Florida, where real estate groups and hotels are building one high-rise after the other right on the coast, despite the risk of a hurricane. But the German desire to build in flood areas also leads to problems.
“When it comes to protection against natural hazards, a lot is a question of raising awareness,” believes insurance expert Reiner Will, head of the rating agency Assekurata. People are not aware that the risk is very real and current. He agrees with the EU insurance regulator Eiopa. “People tend to think that climate change will have long-term rather than short-term consequences for them,” writes the authority in a recent study of insurers’ handling of climate change.
“For many people, their house is their most valuable possession”
Expert Will is the best example of this himself: He lives with his family right on the Rhine. And he has elemental damage coverage in his building insurance. “But we didn’t have them with the household effects,” reports Will. “We only looked at the conditions after the Ahr disaster.” He’s corrected that now.
Will is in favor of insurers informing their customers in other ways. “For many people, their house is their most valuable possession,” he explains. “But many people are not aware of the effects of climate change on this property.” This lack of risk awareness ensures that possible precautionary measures are not taken. “There is concrete that is particularly waterproof, secure doors or drainage systems that do not let water in during heavy rain and flooding.”
However, the question then arises for insurers as to how they take such factors into account. Because they should actually reduce the premiums for homeowners with precautionary measures, but that is not easy in view of the largely standardized contracts. Assekurata boss Will believes that the companies should also switch to so-called opt-out models for elementary protection for household policies. “Building and household covers are often not consistent.” Far fewer people would have insured their household goods against natural hazards than their building. With option or opt-out policies, natural hazard insurance is standard, but the customer can opt out.
2021 was the most expensive natural catastrophe year since statistics began
On the other hand, Will is not a friend of the currently discussed mandatory flood insurance, he prefers the opt-out solution. “That makes sense, after all there are also people with an apartment on the tenth floor of a skyscraper.” The fact that buildings in endangered areas can become a problem has recently been caused by storms Bernd triggered flood disaster shown. It claimed at least 186 lives in Germany in 2021, making it the most expensive natural disaster year since these statistics began in the early 1970s. The GDV estimated the loss volume of the insurers at seven billion euros.
In Germany, there is currently only a low insurance density of around 50 percent for natural hazard covers, which the advocates of compulsory insurance for natural hazards use as the main reason for their claim. The GDV wants to advocate an adjustment of the building and planning law. “The economic damage of the future due to climate change and extreme weather events can only be reduced through climate-adapted construction,” believes Managing Director Asmussen.
The aim should be to insure all residential buildings in Germany against the entire range of natural catastrophes. Building insurance policies that have already been taken out would also be automatically expanded to cover natural hazards on a specific date, provided the customer does not object.