Mandatory coverage for basic property damage has been demonstrated as effective.
### Mandatory Insurance Against Natural Disasters on the Table for Germany
As the nation grapples with the aftermath of devastating floods in North Rhine-Westphalia and Rhineland-Palatinate, discussions about mandatory insurance against natural disasters have gained traction. Currently, less than half of households in Germany are insured against such events, with the figure being even lower in the eastern part of the country.
### The Need for Change
The lack of comprehensive insurance coverage has become increasingly apparent, particularly in the face of climate change. The experiences in Goslar (2017) and Mechernich (2016) have shown that reconstruction can take a significant amount of time, and many businesses may face insolvency as a result.
### Lessons from Other European Countries
France already has mandatory insurance for certain natural hazards, which has helped reduce risk selection by insurers and ensure wider coverage. Italy has recently introduced mandatory NatCat insurance, while the Netherlands is exploring alternative solutions like catastrophe bonds to maintain insurability of climate risks.
### Proposed Solutions
#### Innovative Financial Instruments
One proposed solution is the use of catastrophe bonds, which transfer risks to capital markets, providing a financial buffer against major natural disasters.
#### Policy Adjustments
Making multi-year insurance products mandatory could align insurance contracts better with long-term climate resilience investments. Establishing a European-level public-private reinsurance scheme could prevent insurers from withdrawing from high-risk areas and complement national risk pooling mechanisms.
#### Enhanced Risk Management Practices
Regular system-wide climate stress tests are recommended to identify and mitigate systemic risks. Implementing climate labelling for homes could promote transparency about risk exposures, encouraging more proactive risk mitigation strategies.
### A Voice for Change
Carsten Zielke, an expert in insurance economics and the founder of Zielke Research Consult, based in Aachen-Kornelimünster, is advocating for these changes. Zielke, who has a PhD in insurance economics and has worked at West LB, Bear Stearns, and Société Générale, proposes organizing a reinsurance vehicle Europe-wide and integrating it into the current EU climate protection plan.
In the wake of the floods, Zielke's office building in Aachen-Kornelimünster was affected, with the water level reaching 1.50 meters. Despite this, Zielke Research Consult, which employs eight people, continues to provide analysis, consulting, and lobbying services to insurance companies and banks on solvency and sustainability issues, and regulatory matters.
As the discussions on mandatory insurance against natural disasters continue, it is clear that action is needed to secure property damage and preserve professional livelihoods. The experiences of flood-affected areas in Germany and elsewhere in Europe underscore the importance of comprehensive insurance coverage in the face of climate change.
Economic and social policy discussions, particularly regarding mandatory insurance against natural disasters, have intensified in Germany as a response to devastating floods. To reduce the risks associated with climate change, innovative financial instruments such as catastrophe bonds, policy adjustments like mandatory multi-year insurance products, and enhanced risk management practices like regular system-wide climate stress tests are proposed. Professor Carsten Zielke, an insurance economics expert, advocates for a Europe-wide reinsurance vehicle to be integrated into the EU climate protection plan.
