Economist Kemfert advocates compulsory insurance: ‘Not later at the expense of the state’

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Written By Maya Cantina

We have a good practice of solidarity there”, praised Chancellor Olaf Scholz when he visited the flood-affected Saarland two weeks ago. Huge amounts of rain had caused serious flooding within a few hours. But fortunately there was no major catastrophe like the one that occurred three years ago in the Ahr valley. But the material damage is enormous. Many of those affected are confronted with the ruins of their lives. In the best case, a renovation and the purchase of new furniture that has been destroyed by the water is sufficient. Individually, costs of a few thousand euros quickly arise. Almost no one has that on the high edge.

“No one should be left out in the cold in this difficult situation,” Prime Minister Anke Rehlinger promised financial support. This provision of ad hoc funds in the event of a disaster appears to be a “good practice of solidarity.” solidarity good? Or is she just well-rehearsed?

Billions in costs due to extreme weather

The insurance sector estimated the total damage in the Ahr Valley at 8.75 billion euros. However, not all those affected have sufficient or even complete insurance for their belongings. The damage itself was actually much worse: Loud a study commissioned by the Federal Ministry of Economic Affairs it concerns more than 40 billion euros. The federal and state governments have put 30 billion euros in a reconstruction fund.

Municipalities, associations, companies and private individuals can apply for support, for example for the demolition of buildings, renovation or new construction. There are also flat rates for destroyed household goods. Reconstruction in the Ahr Valley continues to this day.

How fair and sensible are such solidarity practices actually?

The Expert Council for Consumer Affairs pleaded in a report for the compulsory insurance of residential buildings against natural hazards. Such insurance is more effective and sustainable than ex-post government support. Such an obligation to pay for natural damages would be permitted under constitutional law. Moreover, it is accepted by the population and leads to comprehensive insurance coverage.

It can be rightly argued that the dangers of climate change should not be passed on to individuals. But mandatory insurance would affect everyone who owns a home, so that according to research, the annual catastrophe premiums for a single-family home in normal situations are less than a hundred euros and even in extreme situations a maximum of almost a thousand euros. flood situations.

Another advantage is that the premiums for such insurance can be spread according to risk classes. Anyone who builds near the water is more at risk from flooding than someone in the center of a large city. On the other hand, an apartment building in a closed city location has a greater risk of the basement flooding during heavy rainfall. Anyone who takes the right precautions here can save money to rescuebecause then the insurance premium decreases accordingly: keyword flood protection or “sponge city”.

An incentive for precautions and considerations

Anyone who takes appropriate measures to protect or adapt to the climate will benefit financially and also reduce the risk of natural disasters in general. Mandatory insurance against natural hazards This would have a similar effect to putting a price on greenhouse gas emissions: it creates an incentive to take individual precautions against natural disasters, which is certainly more attractive than having to rely on the goodwill of the state in the event of a disaster.

If natural disaster insurance premiums rise to unreasonable levels in certain locations, the state could ease the burden through a targeted transfer, similar to housing benefit. But anyone who has to pay money for catastrophe insurance year after year is more likely to worry about whether the property praised in the brochure as ‘in a beautiful location’ is really as attractive in the long term as it is in the middle of is a high season. -risk area with correspondingly high insurance premiums. Climate-related costs would be reflected in real estate prices. Supposed bargains would not have to be later preserved and renovated at state expense.

And in the future, construction and infrastructure planning might be more likely to take extreme climate and weather conditions into account and plan for adequate flood protection. And then less soil would be sealed, fewer rivers would be canalised, better dike protection would be constructed and sufficient retention areas would be created.

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Costs create awareness

The individual costs resulting from mandatory insurance within a reasonable framework are also likely to reinforce citizens’ fundamental interest in climate protection measures and their acceptance, especially in their immediate living environment. Ultimately, individual costs also decrease as the overall risk decreases. Suddenly it no longer matters whether a commercial or new construction area is built upstream, where there used to be a flood area. And whether the supermarket next door will seal its parking lot with asphalt or cover it with permeable paving stones.

The gigantic economic costs caused by ever-increasing climate change and associated natural disasters will at some point be felt by those affected not just through abstract tax increases, but rather directly and in relation to the causes.

We have had many good experiences with an insurance market that is sensibly regulated in this way, whether it concerns unemployment insurance or health insurance. Everyone contributes to the compulsory insurance, so that you have an individual legal right to assistance in the event of damage. A really good practice of solidarity!

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