Back to search results

Flood Risk Management Governance: Role of Insurance

Insurance in Germany covers only a fraction of the sustained flood losses. In the 2002 floods, only about 15 percent was covered by insurance. The German Insurance Association GDV reported that insurance penetration for natural hazards today may be only about 35 percent throughout Germany, and potentially even lower in the mostaffected areas. Currently, there is intense discussion whether mandatory insurance coverage for flood or natural hazards would solve the problem – some are asking for compulsory coverage, while others, including the GDV, call for a continuation of the open market and for further risk reduction and flood risk awareness. For the 2013 floods, the German government offered flood relief of in total EUR 8 billion for those people and businesses most affected without insurance coverage, and to cover infrastructure damages. Establishing an emergency fund is an important step in providing relief. But increased funding prior to any catastrophe to reduce future losses is clearly the preferred route. Post-event relief may reduce incentives for people in high-risk areas to have adequate insurance, and/or discourage investments to mitigate damage. Even when post-event relief is provided, it may be insufficient to cover all losses of those affected. Providing post-event relief exposes public finances to considerable risk, given the uncertainties and relatively unpredictable nature of such events, even apart from the high costs that they engender. There is thus an urgent need to improve the ways in which various stakeholders are engaged in pre-event mitigation and measures to enhance flood resilience. Experience shows that collaboration between insurance operators, government authorities and other key stakeholders is crucial when it comes to encouraging risk reduction in both the public and private sectors.

PERC Reports