Majority of Germans in favour of compulsory insurance for natural hazards

• Extreme weather events and floods: new survey results presented by KfW Research
• 68% of households are impacted by climate change
• 63% favour compulsory insurance for property owners

The first anniversary of the devastating flood disaster of July 2021 that killed 180 people and caused billions of euros in damage in Germany is coming up in a few days. Extreme weather events that have claimed lives and caused enormous damage have already taken place in 2022 as well. Climate change has made such events more likely. The majority of people in Germany are already feeling these changes. In the survey conducted under the KfW Energy Transition Barometer 2022, 68% of households responded that the impact of climate change is affecting them already or will affect them in future.

One way to address risks from extreme weather events is to take out insurance against natural hazards such as floods and inundations. But current data from the German Insurance Association shows that only around half the buildings in Germany are insured against these hazards. Given the low rate of insurance coverage and the high financial risks to individuals, the idea of compulsory insurance for property owners against losses from natural disasters is being repeatedly flagged. The representative survey conducted for the KfW Energy Transition Barometer 2022 revealed that a majority of 63% of households would welcome compulsory insurance. Property owners were significantly more receptive to the idea than tenants (69% vs. 59%).

What makes this solid majority in favour of compulsory insurance interesting is that opinions about who should bear the loss in the absence of an insurance are widely divided. Households that objected against compulsory insurance were asked who should otherwise be held accountable in the event of a loss. More than half of them (54%) were of the opinion that the state should then pay for any loss. But a large share of respondents (46%) also believed that affected parties should bear any loss themselves. Majorities even differed from one population group to another. Whereas low-income households clearly advocated for the state to step in (67%), the majority of those on higher incomes (57%) responded that affected parties should bear the loss themselves. Compulsory insurance would ease the tension in this fraught field.

Interestingly, no clear connection can be seen between the perceived impact from climate change and advocacy for compulsory insurance. In Rhineland Palatinate and North Rhine Westphalia, the two federal states most affected by the flood disaster of 2021, 64% of respondents favoured compulsory insurance, which is slightly above the average. The share of households that believe they are being personally threatened by climate change impacts or will be in the future is also just slightly above the average, at 67%, irrespective of federal state.

“A broad majority of households in Germany is receptive to compulsory insurance against natural hazards. So it appears to be politically viable. It is also an important contribution to protecting the assets of large sections of the population amid increasing extreme weather events. But among the population there is significantly more controversy over alternatives – whether to have losses covered by the state or by those affected”, commented Dr Fritzi Köhler-Geib, Chief Economist of KfW Group. “Insurance policies must be designed in a way that provides the right incentives for risk avoidance. And they must offer a viable solution for households on which insurance premiums would put a particular strain”, added Köhler-Geib.

The current study is available in German at:
www.kfw.de/fokus

The dataset:
The KfW Energy Transition Barometer is a representative survey of around 4,000 private households in Germany on decisions relating to energy supply and energy consumption. It is published annually.
Further information on the KfW Energy Transition Barometer can be found at
www.kfw.de/energiewendebarometer