German insurers propose natural hazard ID card for buildings

The German insurance industry’s representative body GDV has proposed the introduction of a natural hazard ID card to be used to better classify the exposure of buildings to damage in the event of floods and other catastrophic events.

“The ID card is intended to make natural hazards such as flooding from heavy rain, high water, sewer backwater or subsidence and earthquakes visible and to evaluate them on site,” explained the GDV.

The latest proposal forms part of a package of loss prevention and risk management measures as the German government considers the potential introduction of mandatory catastrophe insurance following the havoc wreaked by storm Bernd last summer.

The government is expected to announce its decision in December.

The GDV is strongly opposed to mandatory coverage. Rather, it suggests a series of binding loss prevention measures such as updated building regulations and bans on construction in exposed areas, coupled with the potential creation of a state-backed stop-loss scheme around the 200-year-event level.

The ID card would be a useful addition to the loss prevention package.

The GDV said it could be modelled on the existing energy certificate system that has created transparent indicators for the energy efficiency of buildings.

With the natural hazard ID card, homeowners, tenants, prospective buyers, craftsmen, insurers or banks would have an objective basis for assessment and decision-making, said the association during a recent event on natural catastrophes held in Berlin.

“While the federal states are calling for compulsory insurance for homeowners to protect against natural hazards, the insurance industry has presented an overall concept for climate change adaptation with several measures,” stated the GDV.

“Insurance cover is important but it is not enough on its own to protect our society from growing natural disasters,” said GDV general manager Jörg Asmussen.

“We also need education about the dangers of natural hazards and binding preventive measures at private and state level,” he added.

The GDV set out its proposals on how to cope with rising climate related risk in the wake of Bernd, in a position paper last October.

“Against the background of the events and with a view to future events, German insurers are urgently in favour of a new overall concept for climate change adaptation. It relies on education, binding measures for private and state prevention, and insurance,” it said.

This overall concept contains three core elements:

1. Binding steps to adapt to climate change
2. Insurance protection for private homeowners
3. Provision for catastrophic accumulation damage – the state-backed stop-loss scheme.

The simple introduction of mandatory coverage alone will not work, warned the GDV.

“These three elements form a unit in terms of time and content. As an overall system, they are interdependent, so that future generations can still fall back on sustainable precautionary measures such as financial security against damage caused by natural hazards. An isolated implementation of individual elements, on the other hand, does not represent a sustainable solution,” said the association in its position paper.

The GDV said the federal government and the state governments in their respective areas of responsibility need to “decide on trend-setting projects to adapt to the consequences of climate change as quickly as possible and to initiate them with binding effect”.

These would include, among other things such as the ID card:

• The anchoring of adaptation to climate change in building regulations as a general requirement
• The enactment of clear building bans in exposed areas
• The establishment and operation of a nationwide natural hazards portal
• The mandatory climate risk assessment for building permits
• The introduction of a national management system for climate change-related risks

These would work alongside systematic damage monitoring and a regular planning council and risk dialogue based on the Swiss model (www.planat.ch).

“Adaptation to climate change is a condition sine qua non. Without consistent adaptation to the consequences of climate change, our society will be forced to relive events – like in the Ahr Valley – over and over again. That can’t be our goal,” said the GDV.

The association also pointed out that the insurance industry and political community are united by the goal of fully exploiting the potential of elementary cover in private residential buildings insurance. “State payments to uninsured homeowners who could have insured themselves are not an economically sustainable solution,” it argued.

“German insurers will therefore accompany the climate change adaptation with the necessary insurance cover. The elementary insurance protection is usually not an independent policy, but the extension of the existing policy to include other natural hazards, such as backwater and heavy rain,” it said.

To truly deliver comprehensive insurance protection for private homeowners, there are several further steps needed, said the GDV:

1. In the future, the insurance industry will only offer fully-integrated residential building insurance, including natural hazards, to all private homeowners in new business, regardless of the risk (location, exposure).
2. At the same time, German insurers will contractually add elementary protection to the private home insurance policies already in place.
3. New business and portfolio changes are based on company-specific and risk-based premium calculations.
4. German insurers will enable new and existing customers to opt out – step by step in return for a written release from liability for municipalities, states and the federal government as well as insurers and intermediaries. “In this exemption from liability, the homeowner waives assistance in the event of natural hazards. Risks of legal action, which are inherent in a mandatory solution, are thus eliminated,” explained the GDV.
5. From 1 January 2022, new buildings erected in officially designated or provisionally secured flood areas (Water Resources Act) will only be built if the dangers of flooding and heavy rain are completely excluded and backwater taken cover.

The GDV said German insurers will exploit the relationship between risk-based insurance premiums and deductibles as far as possible. “Because many hardships can be mitigated on a purely market basis if deductibles are agreed or adjusted,” it said.

Finally, the GDV proposed a provision for catastrophic accumulation loss events.

“The German insurers and reinsurers stand for a market-based, risk-based solution. The instruments and insurance capacities of the market therefore have priority. Nevertheless, no one can predict with certainty how damage from natural hazards will develop over the coming decades in terms of intensity, frequency and spatial distribution,” pointed out the association.

“We are in favour of an instrument within the meaning of the overall concept with which the state can provide support in the event of a catastrophic accumulation loss and limit the effects on the market (so-called ‘stop-loss regulation’). The entry threshold for such an instrument would be high – beyond the 200-year damage known today,” stated the GDV.