Planned legal changes from the coalition agreement
The coalition agreement between the CDU/CSU and SPD provides for the introduction of mandatory insurance against natural hazards in residential building insurance.
Only about half of all residential buildings in Germany are insured against natural hazards. Ever since the devastating floods in the Ahr valley in July 2021, calls for the introduction of mandatory natural hazard insurance have been growing louder. In March 2024, a public hearing was held on this matter in the Bundestag's Committee for Legal Affairs, as it was then known.
The coalition agreement between the CDU/CSU and SPD now puts the introduction of mandatory insurance against natural hazards front and centre, specifically listing it as the first sub-item among the changes to the law planned by the coalition (page 86 of the coalition agreement).
Planned scope
The coalition agreement provides for the introduction of natural hazard insurance exclusively for residential building insurance. Contents insurance such as household contents insurance as well as building insurance for other buildings (office buildings, commercial buildings, etc.) are therefore not covered by the proposed legislation described in the coalition agreement.
The introduction will initially only affect new residential building insurance policies, though existing policies are also to be amended to include natural hazard insurance from a certain effective date (yet to be determined).
"Opt-out solution"
The coalition is also planning to examine an "opt-out solution", meaning a procedure in which residential building insurance policyholders "automatically" receive natural hazard insurance unless they actively decide not to.
Whether an opt-out solution undermines the "mandatory" nature of the insurance is likely to depend in particular on the additional costs incurred by the individual policyholder and whether non-economic interests would prompt the individual policyholder to choose not to take out insurance coverage.
State reinsurance planned
To cover the risk for primary insurers, there are plans to introduce state reinsurance for natural hazards. However, the precise details of the structure and scope of such reinsurance are still unclear. In principle, it is likely to be difficult to introduce natural hazard insurance that is accessible to all policyholders without introducing such reinsurance, as, considering the regional market distribution of the primary insurance market, a sufficiently diversified insurance collective can only be formed at such a combined level of reinsurance.
Regulation of insurance terms and conditions
There are further plans for the corresponding insurance terms and conditions to be regulated and probably also standardised in the process. This is especially noteworthy as efforts to standardise insurance terms and conditions had actually been abandoned (due to European law) since the abolition of the supervisory duty to obtain approval in 1994 (Third German law implementing directives of the Council of the European Communities on insurance law (3. Durchführungsgesetz/EWG zum VAG)). However, the coalition agreement remains vague with regard to its intention to introduce regulations, so it remains to be seen how far the regulatory measures will ultimately go.
Further statement of intent from the coalition
Finally, the coalition agreement provides for a further declaration of intent, according to which the planning authorities in the federal states are to be made aware of the fact that they bear a special responsibility for areas at particularly high risk of damage as part of urban land-use planning. The regulations on state liability for planning authorities that designate new building areas in previously unsettled areas despite these risks are expected to be made more concrete. In addition, the interests of tenants are to be taken into account.
Another reason why these declarations of intent are of such interest is because they raise the general problem of mandatory insurance against natural hazards: Areas at particularly high risk of damage raise the question as to the extent to which natural hazard insurance is even calculable and, above all, financially viable due to the extremely high risk of a claim.
It is well known that insurers differentiate between 4 different hazard zones (simplified system) when assessing the risk that natural hazards may occur:
- Danger zone 1: Not affected by flooding according to current data
- Danger zone 2: Floods occur less frequently than once every 100 years
- Danger zone 3: Floods occur at least once every 10–100 years
- Danger zone 4: Floods occur at least once every 10 years
Insofar as residential buildings in risk zones 3 and 4 are also insured, very high insurance premiums or alternative possibilities that would impose an excessive financial burden on the insurer are to be expected due to the high risk of damage (and ultimately even due to the certainty that damage will occur regularly in danger zone 4).
The coalition also seems to be aware of this. At the same time, it emphasises that the interests of tenants should also be taken into account. As the costs of residential building insurance can be passed on to the tenants, it is ultimately logical to take the tenants' interests into account.
Summary
To summarise, it should be noted that the design of the regulations in the coalition agreement on natural hazard insurance still need to be specified with regard to a number of aspects. Many individual questions regarding the exact scope of the insurance cover, how the costs will be borne and even the general financial viability of such mandatory insurance need to be clarified in detail. Detailed discussions are certainly still required here – not least between the insurance industry and politicians – to put the project into practice.
