Mandatory insurance for severe weather damage under consideration by VZBV
Mandatory Insurance against Extreme Weather Damage in Germany: A Growing Discussion
As the frequency and cost of natural catastrophes continue to rise, discussions around insurance solutions to address climate risks are intensifying in Germany. While no mandatory national insurance scheme specifically mandating coverage of extreme weather damages (e.g., floods, storms, droughts) is currently established or explicitly under public governmental consideration, the need for such protection is becoming increasingly apparent.
The Federation of German Consumer Organizations (VZBV) has advocated for a mandatory insurance against extreme weather damage, citing the growing threat posed by rising temperatures, heatwaves, forest fires, and severe storms. Klaus Müller, CEO of VZBV, emphasizes the importance of offering all-risk prevention as an option in every building insurance.
However, the implementation of such a mandatory insurance scheme is not without challenges. Extreme weather risks are complex and increasing with climate change, requiring advanced models to fairly price premiums and trigger claims. Additionally, many affected regions face low insurance penetration, leaving individuals and businesses exposed and raising affordability and acceptance issues.
Müller, who has called on politics to prepare a new insurance protection, is mindful of the potential implications. He does not want tenants in Berlin or the Ruhr area to cross-subsidize homeowners in other regions and stresses that the costs for the insurance should not be passed on to tenants. He also notes that a mandatory insurance for all homeowners could be a deep intervention in fundamental rights.
Despite the challenges, the need for action is clear. The increasing cost of natural catastrophes is putting a strain on the German economy, with 47% of homeowners currently insured against elemental damages. If the 80% insurance rate against extreme weather damage is not reached, a mandatory insurance would be necessary, according to Müller.
In the future, Müller states that the option of an all-risk prevention should be automatically offered in every building insurance. However, he does not specify any particular measures for the new insurance protection.
As the conversation around mandatory insurance against extreme weather damage continues, it is crucial to balance the need for protection with the potential impacts on individuals, businesses, and the economy. The evolution of this discussion will undoubtedly shape Germany's approach to climate resilience in the coming years.
[1] Brandenburg faces elevated forest fire risks amid current heatwave [2] Health Insurance in Germany [3] Insurance Protection Gap: A Global Perspective [4] Innovative Financial Tools for Climate Resilience [5] Natural Catastrophe Insured Losses Reach Nearly Double the 10-Year Average
- The science of climate-change and the environmental-science community are becoming increasingly important as discussions about mandatory insurance against extreme weather damage, such as forest fires, intensify.
- In the finance industry, the potential for increased insurance payouts due to natural catastrophes could significantly impact the German economy, especially if the currently insured percentage (47%) does not reach an 80% insurance rate against extreme weather damage.
- The industry of insurance, particularly in environmental-science, may see innovative financial tools developed to address the complexities and challenges posed by extreme weather risks, which are escalating with climate change.
