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Flood-hit German homes face higher premiums as climate risks grow

by Arthur Neslen | Reuters
Friday, 23 July 2021 18:24 GMT

FILE PHOTO: A man looks on outside a house in an area affected by floods caused by heavy rainfalls in Bad Muenstereifel, Germany, July 19, 2021. REUTERS/Wolfgang Rattay/File Photo

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Consumer associations and adaptation specialists are exploring ways to share disaster costs more fairly across society

* Less than half German homeowners have flood cover

* Higher premiums seen as climate change drives flooding

* Uninsured households at risk of debt to fund clean-up

By Arthur Neslen

BRUSSELS, July 23 (Thomson Reuters Foundation) - Homeowners struggling to clean up after the deadly floods that swept Germany and Belgium last week could face an added financial strain in the years ahead as insurers move to hike premiums to reflect rising climate risks, industry analysts say.

"Market risk premiums have to be balanced with the underlying risk," said Ernst Rauch from Munich Re, adding that higher premiums were likely within two years following the flooding that killed 191 people in Germany and Belgium.

"Driven by the changing risk situation it's almost a 'must' in order to maintain a sustainable insurance scheme long term," Rauch, chief climate scientist at the insurance firm, told the Thomson Reuters Foundation.

Many other homeowners could be forced to take on debt to repair the damage: Less than half of German households have specific flood insurance cover even as climate change drives more frequent and severe flooding, according to Munich Re.

Across Europe, about 65% of economic losses from natural disasters were uninsured in 2019, said the European Insurance and Occupational Pensions Authority, and the latest flood devastation has given impetus to reform calls.

Germany's VZBV consumer association called earlier this week for sharing flood risk costs across all home policies, as happens under Britain's Flood Re scheme, to prevent the most at-risk from being unable to afford insurance.

Such a shift in the sharing of costs should be "enshrined in (German) law without delay", it said.


Premiums for average homes in German flood zones are currently "somewhere in the order of 400 euros" per year - compared to between 100-300 euros in non-flood zones, Rauch said.

But he questioned whether German consumers would accept higher aggregate premiums to protect people living in flood-prone areas.

It would also be "a negative and reverse incentivisation" for the property sector in such places, he said, removing the financial incentive to avoid living in flood-risk zones.

Germany's insurance firms took a 1.7-billion euro hit from severe weather in June, according to the German insurance association, and some industry reports suggest last week's floods may be some of the costliest ever.

As climate change drives more extreme weather around the globe - from record heatwaves to harsher droughts and floods - such scenes may become less unusual, however.

If emissions from fossil fuels continue to rise, as at present, "we can expect that these very extreme precipitation events will become much more frequent and intense," said Sonia Seneviratne, a climate scientist at ETH Zurich.

Munich Re's data over the last 40 years shows "an upward trend in terms of frequency of these (extreme weather) loss events, and the size of the losses", Rauch said. This was "likely linked to climate change", he added.

Swenja Surminski, the head of adaptation research at the UK-based Grantham Research Institute on Climate Change and the Environment, said the insurance sector should push for more disaster management funds to be spent reducing disaster risks.

Currently, responding to disasters afterward takes up 88% of funding, she said.

Such spending "is not sustainable and the insurance industry is a powerful player to help shift this narrative for society, not only as a responsible sector but also with a view to secure the viability of its own business model," Surminski said.


The German government has already announced an emergency aid fund of 200 million euros to support regions affected by the floodwaters, which it may boost further.

But Daniel Freund, a Green Party member of the European parliament from Aachen - a city hard-hit by the floods - said by phone there was "clearly a risk" that householders could be saddled with debt to fund clean-up efforts.

Usually after disasters, "in the first instance people reach into their savings", said Bronwyn Claire who manages the Cambridge Institute for Sustainability Leadership's ClimateWise programme.

"Hopefully they have a small kitty to cover the immediate implications... but you really start to see the differences (for disaster recovery) in the medium term" - when people return to school, work and normal life, she added.

Freund said the final losses were still uncertain, but the scale of the trauma was already becoming clear.

"The little creeks I played in as a boy suddenly turned into torrents that swept away entire houses," he said.

"It was quite awful to see. Never in the last hundred years has the water risen anywhere close to these levels. It's unheard of."

Read more:

Can we tell if extreme weather is linked to climate change?

From China to Germany, floods expose climate vulnerability

Merkel heads to flood zone facing questions over preparedness

(Reporting by Arthur Neslen; Editing by Helen Popper and Laurie Goering. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)

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