GDV: “336,000 buildings are in flood areas”

Due to climate change, natural disasters are hitting the world more and more frequently, becoming more intense and therefore more expensive. Also in Germany: “Floods of the century now occur every ten years,” warns Anja Käfer-Rohrbach. In ntv’s “Climate Laboratory”, the deputy managing director of the General Association of the Insurance Industry (GDV) explains that damage caused by storms, hail and floods is increasingly putting a strain on not only those affected, but also insurers. “If your house is torn away, we will rebuild it with you – at current prices,” she says. Many insurers are therefore already operating without profit. The even bigger problem? Many houses are being rebuilt where they were destroyed: in the flood zone. “To speak heretically,” says Käfer-Rohrbach, “new development areas in the riverbed are being approved.” Your claim? Make the risks transparent like in Austria and build the houses so that hail and floods no longer destroy the roof and heat pump.

ntv.de: Is Germany still insurable?

Anja Käfer-Rohrbach: Yes. We don’t have any problems at the moment, but we have to set the political course to ensure that it stays that way, because the damage has increased over the last two decades. Firstly because of once-in-a-century floods like in the Ahr Valley, which are in the media, but also because of smaller events like the Christmas flood in Lower Saxony.

What damage are we talking about in these disasters?

The most expensive insured natural event was actually the rain depression “Bernd”. This caused damage worth 8.5 billion euros in the Ahr Valley and North Rhine-Westphalia. Together with other events, the total in 2021 was around 13.2 billion euros. Last year (4.9 billion) no event stood out, but hail in Bavaria caused massive costs. In general, wind speeds and damage increase during storms. They don’t get as much attention, but we are seeing a steady increase in shingles flying off, hail damage, trees falling on cars, and flooding. One should also not forget: With the higher frequency of extreme weather events, houses are becoming more and more expensive because there is a new heat pump in the basement.

Is this still a worthwhile business? Should we assume that insurance will become much more expensive in the future?

In our industry, the “combined ratio” indicates whether insurance is worthwhile: the combined ratio. It is currently at 100 percent, meaning insurers are no longer making a profit.

Already?

Yes, because the damage is increasing, inflation also plays a role. Residential building insurance, for example, insures the sliding replacement value, meaning: If your house is torn away, we will rebuild it with you – at the current prices.

The new house will be significantly more expensive than the one that was destroyed?

As a rule that is the case. Even if we subsequently increase premiums, we will lag behind this development.

How long will this business continue to be interesting?

If it is said that you can no longer take out insurance in Florida or California, it has less to do with the attractiveness of the business area than with the supervisory rules: They exist in Europe Solvency II regulation stipulates that insurance companies must hold equity capital for a so-called 200-year event to ensure that the insurance industry does not falter if it occurs. So they look at how extensive the damage was and adjust how much money would be necessary.

If such an event occurred in Florida, would the insurance company go bankrupt?

That is greatly simplified, but yes: insurers have to see whether they can still represent this damage. In Florida and California, many providers have decided to get out of fire or windstorm insurance because they would have to charge premiums so high that it would no longer be affordable. This is also observed by the supervisory authority. In Germany, for example, BAFIN has said with regard to motor vehicle insurance that insurers must increase premiums so that there is no undercoverage. So the question is not whether the business is still worthwhile, but whether we can raise the equity capital.

At the end of the day, the result is the same: the more insurers leave the business, the larger the insurance gap becomes. More and more people are living in houses that are not insured and, in case of doubt, are left with the damage.

That’s why we have to think about how we can avoid this gap. Unfortunately, the various once-in-a-century floods now occur every ten years and politicians keep falling back into the same discussion: We need compulsory insurance, then it will be cheaper. But that’s not true if you look at the solvency rules, because if the insurance density increases, the loss density usually also increases. Insurers therefore have to hold back more equity and increase their premiums.

Are you and the GDV clearly against compulsory insurance?

In fact, we need an overall concept. The insurance part is one component of several. We have to deal with the issue of “climate impact adaptation” because climate change is here and will increase. Unfortunately, little happens when it comes to this question. In Germany, the roughness of handrails on stair railings is regulated to prevent people from slipping, but there are no regulations for flood-adapted buildings. We build like we did 150 years ago!

We can already hear the construction industry groaning…

But we have to think about prevention, climate impacts and adaptation. Actually already in urban planning, because where do we build? 336,000 buildings are located in officially designated flood zones. These are not black buildings, the houses have been approved – right next to category one and two rivers. These are the big ones. 1,500 to 2,000 new buildings are built in these zones every year. I understand the need, we need more living space, but there is no point in building in such zones. We’re talking about protecting life and limb and people don’t want to constantly rebuild their house. Municipalities and municipalities are responsible for urban planning, as are the states, which are now crying out for compulsory insurance.

Unfortunately, in the Ahr Valley it is often the case that the house is built in the same place where it was destroyed. As an insurance company, can’t you say: We’re happy to build somewhere else, but not here.

If the insured absolutely wants to build in the same location, we will build. But we would see whether we can take precautions in the event of regular damage. We would also build the house somewhere else. But for this we would need alternative space from the communities. That’s why we want to make this topic transparent and build a nationwide natural hazards portal where everyone can enter their address and see what dangers they are dealing with and how they can protect themselves. The portal for this already exists in Austria HORA. There you can simulate all the dangers and watch 3D animations of possible damage that a two-meter-high tidal wave would cause. If this transparency exists, people suddenly ask why – to put it heretically – new development areas in the riverbed are approved.

Do you also have to train the owners, especially with regard to single-family homes, to deal with such questions before building a house?

The fault is in the system, because when do you insure your house? If it stands. But then I can no longer raise the base because water is constantly running into the house or install the heating in the attic instead of the basement. There’s this saying: If you buy cheap, you buy twice. This also applies with regard to advancing climate change. And we see that there is a different way: in Danube and flood-prone cities like Regensburg, the heaters are in the attic. In Austria, thicker roof tiles are installed that do not immediately break with every hailstorm. We, on the other hand, use the slightly thinner ones because they are cheaper.

Spoke with Anja Käfer-Rohrbach Clara Pfeffer and Christian Herrmann. The conversation has been shortened and smoothed for better clarity. You can watch the entire conversation in the podcast “Climate Laboratory” listen.