Questions and Answers on the debate over compulsory natural catastrophe insurance

Why is this issue receiving so much attention now?

Germany’s federal and state governments are considering how to insure more residential buildings against natural catastrophes and how to finance the consequences of increasing losses on a sustainable basis. Around 41 percent of residential buildings in Germany currently have no natural catastrophe cover.

At the latest, the 2021 “Bernd” flood disaster demonstrated that the issue is not simply about increasing the number of insurance policies, but about creating a sustainable system capable of addressing growing natural catastrophe risks.

What is natural catastrophes insurance?

Natural catastrophes insurance supplements residential building and household contents insurance. It provides cover against natural catastrophes that are generally not automatically included in standard residential building insurance. These include, in particular, flooding caused by river flooding, heavy rainfall and sewer backflow.

Storm and hail damage are generally already covered by residential building insurance.

What is the insurance industry’s fundamental position?

The insurance industry advocates a comprehensive approach combining prevention, broad natural catastrophes cover as the standard, sustainable solutions for high-risk locations, and limited government-backed protection for exceptional extreme catastrophes.

How significant is the loss problem?

Natural catastrophes regularly cause losses running into billions of euros. In 2025, natural catastrophes caused around €1.4 billion in insured property losses. Of this amount, approximately €1 billion resulted from storms and hail, while around €400 million was attributable to natural catastrophes such as heavy rainfall and flooding.

In the long term, the risk of natural catastrophe losses is increasing. Since GDV began collecting data in 2002, natural catastrophes have caused average annual losses of around €2 billion. In this context, 2025 was a comparatively quiet year. Individual years, however, do not provide a reliable indication of long-term loss trends.

France has a very high insurance penetration rate. Why is it not a model for Germany?

France demonstrates that a high level of insurance coverage alone does not guarantee a financially sustainable system over the long term.

Although the French CatNat system achieves an insurance penetration rate of around 98 percent, financial pressures led to an increase in the statutory surcharge on property insurance from 12 percent to 20 percent as of 1 January 2025. The French Court of Auditors also considers the system’s financial sustainability to remain under pressure and has called for stronger prevention measures.

France therefore cannot simply serve as a blueprint for Germany.

How does replacement value insurance relate to the debate?

In Germany, residential buildings are generally insured on an indexed replacement value basis. This means that a damaged building can, in principle, be restored to the same type and quality at current local construction costs, while also taking into account applicable public-law requirements.

Maintaining this level of protection is important for consumers.

How could natural catastrophes cover become the standard?

Under the insurance industry’s proposal, natural catastrophes cover could become the standard for both new and existing business through Elementar Re. Customers would be able to consciously decline this cover through an opt-out mechanism after receiving transparent information.

This could increase insurance penetration without completely abandoning freedom of contract. It would require a clear statutory framework, practical documentation requirements and sufficient implementation periods.

What role would Elementar Re play in the overall framework?

Insurers operating in Germany have developed a model designed to demonstrate how natural catastrophes cover could remain universally available, insurable over the long term and affordable for consumers.

The model addresses two fundamental questions: How can protection against natural catastrophes remain insurable in the long term? And how can risk be shared with the government in the event of extreme natural catastrophes?

At its core, the model concerns more than 400,000 residential buildings in Germany located in areas where fully risk-based premiums could be difficult for homeowners to afford.

For defined high-risk residential buildings, a premium cap based on the size of the building would apply. The difference between this cap and the actuarially required risk-based premium could be financed through a broadly distributed solidarity levy. This would provide targeted support for affordability without abandoning risk-based pricing for normal- and low-risk properties.

Elementar Re would not constitute a compulsory insurance model. Instead, it would serve as an insurance mechanism for defined high-risk residential buildings. The insurance contract would remain with the primary insurer, while clearly defined high risks could be transferred to and pooled within Elementar Re.

Elementar Re would therefore be one component of a broader overall system.

Who ultimately pays, and what role would the government play?

In the first instance, policyholders and insurers would bear ongoing losses. Risk-based premiums, reinsurance and, where applicable, Elementar Re would form the first line of protection. The solidarity levy and a protection fund would provide additional support for high-risk locations.

The government would remain primarily responsible for the legal framework, prevention and disaster protection.

Under the insurance industry’s concept, a government stop-loss mechanism would provide additional protection only in the event of very rare extreme catastrophes involving losses of approximately €30 billion or more. The government would therefore not act as a primary insurer or permanent reinsurer.

What happens if property owners opt out of cover and later expect government assistance?

Anyone who consciously decides against natural catastrophes cover after receiving transparent advice should not generally be able to assume that, following a loss, ad hoc government assistance will place them in the same financial position as someone who was insured.

Otherwise, the value of insurance protection and individual precautionary measures would be undermined and inappropriate incentives would be created.

The relationship between a documented opt-out and eligibility for government assistance should therefore be clearly defined by law. Unavoidable cases of social hardship should be addressed separately and through targeted measures outside the insurance system.

Why is prevention so important?

Insurance can compensate for losses, but it cannot prevent them.

Particularly in the case of heavy rainfall, flooding and sewer backflow, prevention determines whether damage occurs at all and how severe it becomes. The more effectively losses can be prevented, the more stable insurance protection remains and the lower the pressure on premiums.

Prevention is therefore essential to maintaining long-term insurability.

Why does construction continue in flood-prone areas despite the known risks?

Construction continues in high-risk areas because pressure on available land, municipal development interests and short-term housing targets often outweigh considerations of long-term prevention.

In addition, responsibilities are divided among the federal government, state governments, municipalities and property owners.

Since 2000, around 2.7 million new residential buildings have been constructed in Germany. More than 32,000 of these are located in flood zones. Overall, approximately 300,000 residential buildings are located in areas with a high level of natural catastrophe exposure.

What legislative and municipal changes are needed?

The federal and state governments should give greater consideration to natural catastrophes and the consequences of climate change in water, building and planning law.

Important measures include prohibiting construction in provisionally designated and officially established flood zones, creating a nationwide natural catastrophes portal, and introducing a natural catastrophes certificate for buildings.

Municipalities can reduce local risks through land-use planning, removing sealed surfaces, creating water-retention areas, implementing flood protection measures and improving preparedness for heavy rainfall.

To do so effectively, municipalities need planning certainty, adequate funding and sufficient legal powers.

What can municipalities do specifically to reduce risks?

Municipalities can use development planning and land-use policies to keep flood-prone areas free from development. They can remove sealed surfaces, create retention basins, expand flood protection infrastructure and develop strategies for managing heavy rainfall.

Effective warning and alert systems, emergency plans and public information are also important.

Natural catastrophes cover can remain affordable over the long term only if public protection measures and private prevention efforts work together.

How would broader natural catastrophes coverage affect premiums overall?

Natural catastrophes cover comes at a cost because it insures against real risks. A higher insurance penetration rate initially means that more risks are covered within the insurance system, increasing the total amount of insured losses.

At the same time, a broad insurance base helps distribute the cost of extreme losses across a larger number of policyholders.

Through risk-based premiums, Elementar Re for high-risk locations and clear prevention requirements, the insurance industry aims to ensure that insurance protection remains affordable over the long term.

The more effectively losses are prevented, the less upward pressure there will be on premiums.

What should policyholders do today?

Policyholders should review their existing residential building and household contents insurance policies. In particular, they should check whether natural catastrophes are explicitly covered.

If they do not currently have such cover, they should contact their insurer to determine what options are available for adding it and what conditions apply.

It is also worthwhile reviewing preventive measures for the property. These may include protection against sewer backflow, securing basement openings, positioning electrical installations at a higher level, and establishing emergency plans for severe weather events.

Insurance protection and prevention complement one another and, together, improve resilience.

Anyone wishing to assess the flood and heavy-rainfall risk for their own property can use GDV’s free, address-specific Flood Check (Hochwasser-Check).