Vehicles destroyed by storm “Bernd”. Source: R + V Versicherung
The pictures of the flood event “Bernd” and its consequences affected us – unfortunately such events will occur more frequently in the future. Prevention, warning infrastructure and insurance are crucial components in order to reduce the consequences of future flood events. A guest post by Jan-Oliver Thofern.
Most of them still remember the terrible pictures of the floods in August 2002 – also known as the “Elbe flood” in Germany. At that time, the Elbe overflowed its banks and caused insured damage with a current value of around EUR 4.6 billion. We have to assume that the flood “Bernd” also causes damage of this magnitude. However, we will only know reliably in a few months. From a scientific point of view, there is probably no serious doubt that climate change accelerates such and similar phenomena and also shortens the time between their occurrence. But the increasing surface sealing, the development of high-risk areas and retention areas of the rivers as well as the manipulation of natural rivers have an impact on the damage and the amount of damage.
We would do well to realize that in a short period of time it will hardly be possible to effectively influence climatic phenomena that cause damage. So, in addition to other preventive measures, we have to work intensively and quickly to achieve the most important goal: avoiding harm to life and limb. The available warning apps are better than variously claimed – but they have a significant weakness: the content posted by those responsible must alert without frightening. In addition, warning notices naturally only reach smartphone owners who have installed the warning app and may read warnings in the middle of the night.
How well – or badly – this worked in practice can be read in detail in the documented processes. An important additional channel is therefore “cell broadcasting”, which works with SMS and can reach everyone in a radio cell who has switched on their phone and not just those who have also downloaded an emergency app and activated its “push notification” to have. Other countries – not just the USA – have long since introduced such systems: Japan (2009), the Netherlands (2012), Turkey (2012) and also Russia (2015).
Before the federal election, a feasibility study on SMS mass mailing should be available and then, if the study is positive, an advertisement should be made. It is to be hoped that the prognoses for the introduction for the summer of 2022 can be kept. It would be late enough. In addition to the warning of acute dangers, in connection with the issue of building permits, the explicit consideration of the hazard class for flood areas (for example using the ZÜRS system) is urgently required. In addition to the experts from science, the experience of the insurance industry in risk assessment should also be given greater consideration.
Nevertheless, in the wake of events like “Bernd”, people regularly call for compulsory insurance against natural hazards. Rightly, one might think, because with compulsory insurance – this is the thesis – the problem of uninsured risks and the associated hardship cases would be
solved. Apart from the legal hurdles caused by the different levels of impact of potential “compulsory policyholders”
the system would intervene in a market that works. Almost 100 percent of all buildings in Germany can be insured. For example, it was completely different in terror insurance after the attacks on September 11, 2001. Thereafter there was practically no market for insurance against the risk of terrorism. At that time, the breadth of demand met almost no supply in the market, so that many countries supported an insurance solution. Sometimes this was also organized as compulsory insurance.
A homeowner who could have taken out insurance but did not do so may not be treated in the same way as his immediate neighbor, for example, who has been paying for his insurance for 20 years. Nonetheless, cases of hardship must always be supported, but the refusal to accept insurance must not become an economically rational decision.
In summary, the focus of efforts in the coming years should be on technical prevention that can be implemented in the short term, the optimization of the technical and organizational warning infrastructure and continuous and transparent clarification of the importance of insurance protection. The presented options for implementing state subsidies could accompany this path.
Author: Jan-Oliver Thofern, Chief Executive Officer Aon, responsible for Reinsurance Solutions
You can read more about this in the next issue of Insurance industry, available from September 1st.
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