Compulsory insurance, obligation to offer insurance or none of the above? After the floods of the past few months, the federal and state governments are now struggling to find an appropriate approach to the issue of natural hazard insurance.
It’s just one word, but it shows the direction the Chancellor is thinking: “Owners of houses and apartments must be able to insure themselves,” said Olaf Scholz in his last government statement at the beginning of June. “Be able” – that’s how many people interpret it to mean that the SPD politician is against compulsory insurance for natural hazards.
Instead, the Chancellor seems to be following the course of Justice Minister Marco Buschmann: a so-called obligation to offer could be his preferred model.
This would mean that the insurance industry would have to present a contract offer to every homeowner – even in high-risk situations. The contract can then be rejected, however. This is why the model is also known as an “opt-out” solution.
The Insurance industry promotes
It is questionable whether a mere obligation to offer insurance will increase the number of insured people as desired: Contract offers in high-risk areas can be very expensive. Premiums of several thousand euros per year are quite common – and at the same time a high deductible in the five-figure range. It is easy to imagine that many homeowners would then prefer to play the “opt-out” card.
The obligation to offer is the model that the insurance industry has been promoting for years – much to the displeasure of the federal states. In the last Federal Council meeting, they once again sent out a signal: they want compulsory insurance as quickly as possible, according to their resolution. The federal government should “immediately present a suitable proposal” that “also guarantees affordability for everyone”.
Criticism from the Prime Minister
Before the decisive federal-state round, the state premiers are taking a harsh stance today: the obligation to offer insurance is not helping anyone, criticizes Lower Saxony’s head of government Stephan Weil. “It is only the insurance industry’s duty to increase its advertising measures,” said the SPD politician. In high-risk cases, the industry would certainly not do this “with great motivation,” Weil added, taking a swipe at the insurers.
The industry feels it is being unfairly pilloried: It cannot be that too little is invested in prevention – and then when damage occurs, everyone calls for insurance, argues Jörg Asmussen, Managing Director of the General Association of Insurers: “We plan, renovate and build in Germany as if climate change did not exist.” In recent years, “32,000 houses have still been built in areas at extreme risk of flooding.”
Buschmann warns of high costs
Justice Minister Buschmann, whose department is responsible for the insurance issue, also stressed shortly before the meeting with the states that prevention must be a priority. The FDP politician also warned of the high costs of compulsory insurance. “There are regions in Germany where the insurance premiums would be so high that we could potentially drive people out of their homes,” Buschmann said in the Bundestag on Wednesday.
He invited journalists there at short notice to comment, probably to publicly counter the criticism from the states. Since owners are allowed to pass on such building insurance to the rent, the model could “lead to the additional costs increasing so much that tenants can no longer afford to live in certain regions,” said Buschmann.
Insurance rate very different
The fronts seem to have hardened – how could both sides move towards each other? One option being discussed is a more stringent obligation to offer insurance, which would put more pressure on the parties. Anyone who does not accept the insurance offer will not be able to benefit from state aid, or only to a limited extent – that is one idea. State circles say that such a model would at least be a start and would place significantly more obligations on homeowners.
To date, on average only 54 percent of them nationwide have natural hazard insurance, which not only covers against flooding, but also against other natural hazards such as avalanches, landslides or snow pressure.
There are particularly few insured buildings in Bremen (33 percent) as well as Lower Saxony and Mecklenburg-Western Pomerania (35 percent). In Baden-Württemberg, however, 94 percent are insured against natural disasters.
Affordability remains open
That is why there is a lot of pressure coming from there. “If there is an immediate call for state aid in the event of natural disasters, those who have made provisions are the fools,” appeals Baden-Württemberg’s Green Finance Minister Danyal Bayaz.
Both models – compulsory insurance and obligation to offer – leave open the question of how high-risk contracts are to be affordable. It is conceivable that the state, as a so-called reinsurer, will share in the risk and also provide financial means for this.
But even those among the states who are calling most loudly for compulsory insurance are very monosyllabic when it comes to money. For Lower Saxony’s Prime Minister Weil, what is needed first is a “basic consensus” with the federal government. “And then you can talk about the details for a long time.” He does admit that the question of state insurance is not the smallest detail: “It’s not easy.”