Germany: Who will pay for the flood damage?

Flooded streets, landslides, evacuated houses submerged deep in water — that's the scene in large parts of southern Germany. Where the water has flowed, buildings, cars, furniture and household goods have all been swallowed by mud and destroyed. 

This is not the first extreme weather to cause damage this year: heavy rainfall, hailstorms and severe thunderstorms have already ravaged parts of Germany. Regions in the west of the country along the Rhine, in the north along the Elbe, and in the south at the foothills of the Alps have all been hard hit. 

As a result of climate change, extreme weather events are occurring more frequently and repairing the damage is more costly. That is still evident today in the Ahr Valley, an area devastated by catastrophic flooding in the summer of 2021 in which 135 people lost their lives.

According to estimates by the German government, property damage amounted to more than €30 billion ($32.6 billion), only some of which was covered by insurance. The German Insurance Association (GdV) estimates €8.5 billion. In 2021, the amount of claims for natural hazards was the highest in the history of German insurance companies.

Compulsory insurance and risk coverage in Germany

In Germany, you can get insurance for almost anything. Some types of insurance are compulsory, including health and nursing care insurance, and third-party liability insurance for vehicles. Anyone who keeps a dog must take out liability insurance for the animal.

Other risks, however, are not necessarily covered. These include damage that can occur to buildings. But even if a homeowner takes out building insurance, not everything is covered: usually, only damage caused by storms or hail is covered, but not by high water, flooding or landslides.

Flood insurance usually requires additional cover. However, the premiums can be very high depending on where the building is located. Some insurance companies estimate the risk of flooding to be so high in some places that they no longer offer any coverage at all. Around half of all homeowners are not insured against flood damage.

Those without insurance are left empty-handed in the event of a catastrophic flood and face financial ruin. Although the state steps in with emergency aid after severe floods, this can only partially cover the damage. Especially as the federal, state and local authorities must first and foremost ensure that infrastructure — roads, bridges and supply lines — is rebuilt.

State support is not guaranteed 

After the Ahr Valley disaster in 2021, the federal government set up a special €30 billion fund to aid the reconstruction efforts. Federal states affected by the flooding will qualify for the aid on condition that they also provide funding. However, budgets are tight among the federal states and the heads of government are increasingly unwilling to provide financial assistance in an emergency.

Bavarian Prime Minister Markus Söder of the center-right Christian Social Union (CSU) announced on Bavarian public radio BR2 that a mandatory natural hazard insurance scheme would be decided at the next conference of state premiers. Although voluntary insurance is normally always better, "the state cannot always simply cover the costs of the damage."

The insurance industry is not enthusiastic. Compulsory insurance could only work if the state acted as a kind of guarantor to step in and cover the costs in the event of a catastrophe too costly for insurance companies to cover. 

During a visit to Bavaria on Monday, Federal Chancellor Olaf Scholz of the center-left Social Democrats (SPD) held out the prospect of financial aid from the federal government for the areas currently affected by the floods. "Of course, we will also continue the practice of solidarity that we have in Germany," he said.

However, given that this was the Chancellor's fourth visit to a flood area this year, it had to be clear that these were not isolated events. Politicians need to act. "We will, therefore, not be able to neglect the task of stopping man-made climate change," Scholz added. 

This article was originally written in German.

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