In July, extreme weather in several regions of Germany cost many people their lives, and destroyed homes, livelihoods and whole villages. What is the situation with regard to insurance coverage? And what financial burden will insurers be faced with? Dr Frank Grund, BaFin Chief Executive Director for Insurance Supervision, discussed these issues in a short interview with BaFinJournal.Herr Dr. Grund, gibt es für die Betroffenen der Flutkatastrophe Versicherungsschutz?

Dr Grund, do those affected by the flood disaster have insurance coverage?

Many of the people affected probably did not have adequate insurance coverage since not even half of property and business owners in Germany are insured against damage caused by natural forces. This is a big problem for many people. Some of those who now have to rebuild their home or business are faced with costs that they may not be able to bear. The extreme weather is yet another painful reminder of how important it is for people and businesses to take out sufficient insurance, which can at least cover the material damage. Contrary to what one might expect, the fact that so many people are uninsured is not down to the insurers.

So it is not true that people and businesses in regions at risk of flooding are unable to take out insurance against damage caused by natural forces?

People often assume that to be the case. It may be true that in regions at risk of flooding, the percentage of insured buildings is likely to be lower than average, and the premiums higher, but the flooding should definitely serve as a reminder for policyholders to think about their insurance cover. Those who have taken out residential building insurance or contents insurance should check whether their insurance gives them the necessary coverage. Business owners should also check whether, if it comes to the worst, their business interruption insurance will provide coverage.

What should policyholders consider here?

Damage caused by groundwater that is not due to heavy rainfall or flooding is often not covered by insurance against damage caused by natural forces. Policyholders should therefore also look into and perhaps seek advice on this matter. Coverage depends on what is stipulated in the general insurance policy conditions. And the conditions are not the same for all policies.

How high are the insured losses?

In total, the losses run into billions of euros. We surveyed around 150 German property and casualty insurers and 28 reinsurers, among others. We wanted to know their claims expenditure in a worst-case scenario, for example. Our primary focus was on insurers offering comprehensive residential buildings and contents insurance, and insurers offering comprehensive motor vehicle insurance. Based on an initial estimation by primary insurers,

losses amounting to around €5.7 billion could be expected in a worst-case scenario, of which around €4 billion would be reinsured. Subtracting reinsured losses, the expected net claims expenditure is around €0.7 billion in the comprehensive residential buildings insurance segment, around €0.2 billion in the comprehensive contents insurance segment, and around €0.2 billion in the comprehensive motor vehicle insurance segment. The remaining €0.5 billion are spread across other insurance classes, such as storm insurance and business interruption insurance.

And German reinsurers?

The companies we surveyed reported that, at worst, they expected a net burden of around one billion euros. We consider these figures to be quite reliable. But we are remaining vigilant. The survey will be repeated soon so that we can update these figures.

These are considerable sums. Does this pose a risk to insurers’ ability to continue their business activities?

There are regional differences for property and casualty insurers. But, based on the information we have received to date with regard to both property and casualty insurers and reinsurers, we can conclude that no insurers are facing a threat to their continued existence.

Dr Grund, thank you for your time.