Compulsory insurance for natural hazards: Baden-Württemberg is making progress!

Compulsory insurance for natural hazards: Baden-Württemberg is making progress!

The discussion about compulsory nationwide insurance for natural hazards is gaining momentum. The Baden-Württemberg state government has advocated that future residential building insurance should only be offered in combination with natural hazard insurance. This was supported by Federal Justice Minister Stefanie Hubig (SPD), who announced the introduction of such insurance. However, details about the exact design are not yet known, which leads to questions about the timing of implementation. In Germany, around 50% of homeowners are not insured against natural hazards such as floods, floods or heavy rain, which often leads to state costs in the event of damage, as the case of the Ahr Valley flood in 2021 shows, when the state stepped in with taxpayers' money and provided more than 30 billion euros for aid.

The situation is somewhat better in Baden-Württemberg: Here, 94% of residential buildings are insured against natural hazards, in contrast to a nationwide rate of only 54%. Prime Minister Winfried Kretschmann (Greens) described the current figures as worrying, as many homeowners who are not insured still receive compensation from the state in the event of damage. State Justice Minister Marion Gentges (CDU) also expressed criticism, emphasizing the need for real compulsory insurance in order to reduce the state's financing burden.

Market development and challenges

The insurance industry sees both opportunities and challenges in the project mentioned. One suggestion for discussion is a model in which natural damage can be excluded from building insurance. Insurance expert Jörg Schiller assumes that a possible opt-out solution could increase the insurance rate to up to 70-80%, as this regulation would enable building owners to refuse natural hazard insurance.

According to the General Association of the German Insurance Industry, the insurance density for residential buildings has stagnated in recent years, while the demand for natural hazard insurance is continuously increasing. By the end of 2023 alone, 9.6 million residential buildings have taken out insurance against natural hazards, raising the insurance rate for residential buildings to 54% for natural hazard insurance. In comparison, the insurance rate for storm and hail is 96%, underscoring the urgency of comprehensive coverage.

A law on compulsory insurance for natural hazards could soon be introduced. But implementation remains uncertain and could take years. Historically, there was a state insurance requirement in Baden-Württemberg before 1994. A return to such compulsory insurance could not only improve insurance coverage for many domestic buildings, but also reduce potential financial burdens on the state, which often has to pay for the damage.

Given the increasing frequency and intensity of natural disasters, the introduction of such compulsory insurance appears more necessary than ever. The population expects security and protection, and if the state cannot meet this responsibility alone, well-structured insurance solutions are the way forward.

For further information on developments in natural hazard insurance, take a look at the reporting from SWR and daily news. Further statistics and data can be found at GDV.