The catastrophe in the Ahr valley showed the enormous damage that the consequences of climate change can also cause in Germany. Are we adequately insured? Why this is so complicated, what new concepts are there and how the state supports them.

In 2021, the flood disaster killed people, especially in the Ahr Valley, and also caused considerable economic damage. In Germany it should have amounted to more than 80 billion euros. The reconstruction is far from complete. Last summer, the weather pattern was practically the exact opposite: rivers turned to rivulets and the drought cost farmers millions.

The consequences of climate change are thus also becoming increasingly noticeable in Germany. The discussion has long since flared up as to how people and companies can insure themselves against this. What do you have to do yourself? How much does the taxpayer pay? And who should step in if a person affected simply had no insurance?

There is also a fairness debate behind this: Should those who save the money for household insurance get a new home from the taxpayer in the end? Some ask that. Should one let down the people who have lost everything, the others counter.

Experts such as Daniel Osberhaus, research associate in the field of environmental and resource economics at the Leibniz Center for European Economic Research (ZEW), says: “Government aid, if it is not linked to any conditions and is apparently free of charge for those affected, leads to poorer provisioning by households in the long term , as empirical studies from various contexts show.”

The research would uncover cognitive misperceptions about insurance coverage and risk: “Most of the time, heads of household ignore or underestimate flood risks and overestimate their own insurance coverage.”

A reorganization of the insurance market is needed: “The current system, characterized by a free market with a low insurance density and uncertain state aid in the event of a disaster associated with false incentives, has once again proven to be unsuitable for meeting the challenges of climate change.”

So it’s time for new concepts for insuring against environmental damage. And now something has happened in the very branch that has fought against the inclemency of the weather for 40,000 years: in agriculture. The situation here is paradoxical: around 70 percent of farmers in Germany are insured against hail damage – this insurance has existed for 180 years.

But when it comes to drought, floods and other consequences of climate change, things don’t look good, although the damage caused by them is now significantly higher than by hail. “Prevention and financial security, for example through insurance, must therefore be given greater importance,” said Thomas Blunck, a member of the board of directors at reinsurer Munich Re. Alexander Lührig, head of the agricultural division at Allianz, gives a gloomy outlook: “Many dangers and extreme events in we can’t even imagine the future today, there’s going to be a huge problem.”

It is now part of the insurer’s business model to warn of dangers and get people to take out contracts and pay premiums so that such risks are covered. Allianz, based in Munich, has been working closely with the Free State of Bavaria for some time on a concept that could convince farmers in particular to take better protection.

The magic word of the hour is multi-risk insurance. It is intended to protect farmers against damage caused by frost, drought and floods. Bavaria is the first federal state to decide that the state will pay half of the fees for this insurance. Other states are likely to follow.

But why should the taxpayer pay? The strong financial incentive comes from the fact that both politicians and insurers have an interest in as many farmers as possible taking out such a policy: Allianz and other insurers benefit from the contributions, and politicians do not have to take those affected with them if the worst comes to the worst dump state money. The fact that farmers have relatively little insurance cover is mainly due to the high costs. An example shows how expensive adequate insurance cover against the consequences of climate change is:

Depending on the region, insurance against hail damage costs 0.5 to 4 percent of the hectare value of the cultivated crop – grain is relatively cheap, corn is a bit more expensive, and a field of strawberries can cost ten to twenty times as much. Since multi-risk insurance protects against multiple damage, the insurance premium increases to between three and more than ten percent of the insured value. The premiums per farmer add up to 10,000 euros and more. That’s too much for many. Now, at least in Bavaria, the state takes over half.

The industry association of insurers hopes that the other 15 federal states will follow the example and support the farmers with the insurance contributions. “In view of increasing periods of drought and more frequent extreme weather events, we insurers have long been demanding subsidies for agricultural multi-risk insurance to help farmers,” said Anja Schäfer-Rohrbach, deputy general manager of the industry association GDV. However, there should not be an obligation for farmers.

Two problems remain: How does the state deal with those who don’t want the new multi-risk insurance and call for taxpayer help in an emergency? And:  How do you encourage farmers to counteract climate change by choosing the plants they grow? Insurers and the state try to guarantee the latter by charging a high proportion of their own in the event of damage. This so-called deductible is quite high at around 20 percent of the sum insured.

“This is intended to encourage the farmer to act preventively and consciously avoid damage, for example by selecting plants that are particularly resistant to drought,” says Allianz agricultural manager Lührig.

The article “The first insurance against climate change is paid for half by the state” comes from WirtschaftsKurier.