By Ulrike Dauer
A German economic think tank has proposed that building
insurance against flood-related damage become compulsory, as
governments, individuals, companies and insurers in Central Europe
grapple with the cost of repairing the devastation caused by recent
widescale flooding.
Compulsory insurance for all buildings would limit individual
payments required to repair losses when caused by floods, storms,
earthquakes and storm surge, said the DIW Deutsches Institut fuer
Wirtschaftsforschung, one of the economic research institutes
advising the German government.
Costly disasters are on the rise in both rural and urban areas,
whether they are due to climate change or not, the DIW said,
echoing comments by the Geneva Association, an international think
tank set up by the insurance industry. As a result, the European
Union is also considering new flood protection regulation.
Only about 30% of buildings in Germany are currently insured
against flooding, according to figures from Germany's GDV insurance
association. Commercial insurers consider 1% to 2% of all buildings
in Germany are uninsurable--either because they are frequently
affected by flooding due to being close to water, or because
regular claims would make insurance too expensive.
The DIW proposes compulsory flood insurance with staggered
policyholder deductibles--depending on the risk zones in which
buildings are located--to ensure the policies are affordable and
there is sufficient interest in buying them, while also ensuring
flood prevention isn't neglected.
In addition, the DIW proposed the German government offer a loss
guarantee for claims above 8 billion euros ($10.7 billion).
Many fear losses caused by the latest flooding could be higher
than the economic damage of EUR16.8 billion and insured losses of
EUR3.5 billion that resulted from the August 2002 floods, which
were then considered a once-in-a-century event.
On Thursday, Germany's government set up a national
reconstruction fund of up to EUR8 billion for losses caused by the
latest floods.
Write to Ulrike Dauer at ulrike.dauer@dowjones.com
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