Storm “Nadia” paralyzed large parts of northern Germany at the end of January. There was a storm surge, trees fell, a pedestrian died. The Swiss Re Institute expects insured losses in the low three-digit million euro range – for Germany alone. In addition to the damage caused by the high wind speed, the ensuing unexpected storm surge caused destruction along the coasts of the North and Baltic Seas, from England to Poland to Finland.
If natural disasters occur in your own country, this should be a wake-up call for every individual to protect themselves more effectively against such dangers and their consequential damage. Society is only armed against climate risks if everyone contributes to the protection.
It shouldn’t be a matter of the state rushing to help in times of need. After storm “Nadia” the next wake-up call should only be a matter of time.
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When it comes to winter weather, we still primarily think of romantic, snow-covered landscapes. But this time of year also includes destructive storm events, such as “Sabine” last year. An analysis by the Swiss Re Institute for the Handelsblatt shows that the number of devastating storms has increased significantly in recent years.
Since 1980, Germany has been hit by exactly 16 major winter storms, each with damage costs of more than 500 million euros – there were seven between 2015 and 2020 alone, including “Niklas”, “Herwart” and “Friederike”.
The economic damage from the 16 storm events totaled EUR 32 billion, of which 37 percent – i.e. EUR 12 billion – were uninsured and had to be borne primarily by private households and companies.
The Germans are underinsured
This high coverage gap is anything but a coincidence. Germany has the lowest insurance penetration among the G7 countries. The consequences of underinsurance were also evident during the devastating floods in July, when private homeowners were confronted with high damage costs for which there was no insurance cover. The main reason for the gap is well known: the compulsory residential building insurance only covers building damage caused by lightning, hail and storms from wind force 8.
An additional elementary damage insurance, which covers dangers caused by storms such as floods, landslides or heavy rain, is only available for 46 percent of residential buildings in Germany.
For more than half of the buildings, no natural hazard insurance was taken out. The plight of the summer flood victims is being alleviated by the 30 billion euro state aid fund.
But as understandable as it is to help people in need with tax money – it is not the task of the state to protect against natural hazards and other damage. The insurance industry is taking on this role more efficiently and not at the expense of the general public. It is the task of the industry to bear the financial risks of such natural disasters. In addition, however, it must also create incentives to prevent the risks – be it with the promotion of flood protection measures or with bonuses that favor building outside of danger zones.
If you rely solely on a possible compulsory insurance, you think too little. If the industry really wants to make a bigger contribution, it needs to make insurance easier to access, regardless of the debate about compulsory insurance. The insurance industry should therefore see its digital transformation as an opportunity to break down existing access barriers.
Use the potential of digitization
The potential of digitization can be seen, for example, in insurance solutions against flood risks that use real-time radar satellite images. Models based on more detailed data analyze previously inaccessible risk information – for remote valleys as well as city centers.
In flood-prone areas of the USA, insurers can already offer flood insurance tailored to the home. This is an important contribution to the fight against underinsurance, especially in areas that were previously considered uninsurable.
The insurance think tank Geneva Association has examined the main reasons for underinsurance in mature markets like Germany. In addition to financial reasons, the lack of clarity and transparency of the products and the low level of user-friendliness when purchasing and handling claims are what keep people from taking out insurance. With a digitized value chain, the still very traditional insurance processes can be simplified and accelerated.
Offers and online contracts that can be called up at any time on the Internet have long been the norm in other service industries. But with insurance companies in Germany, apart from a few product categories, less than 15 percent of the premiums can be traced back to contracts that were concluded online.
Automated risk assessments are not yet standard either. Especially the younger generation of future real estate buyers find it incomprehensible and sometimes even suspicious when it takes several days to check their insurability.
Simple and transparent purchasing processes can make an important contribution to tackling underinsurance. No less important are digital approaches to speed up claims processing.
Some vehicle insurance companies already satisfy the need for uncomplicated, efficient offers. All you have to do is send in a photo of the damage to receive a payment and help with the repair at the same time. In the building sector, too, there are first insurance policies where damage reports are already being processed using satellite images.
Risks can be predicted more accurately
Another key benefit of digital technologies for insurance is their ability to provide more accurate data and analytics to more accurately predict risk. For insurance companies, this means: In addition to financial risk transfers, they can also offer their risk knowledge for prevention in the future.
In doing so, they help prevent hazards, which can reduce damage costs and allow for lower rewards. Especially in the case of extreme weather events, the seasonal and specific occurrence of which can be predicted thanks to better and better models, a stronger focus on preventive measures offers considerable potential.
Of course, digital insurance solutions are not a panacea. But I am convinced that digitization will enable a great leap forward in overcoming access barriers and thereby reducing the insurance gap. In Germany, too, future winter storms should leave fewer gaps in government and private household budgets than they do today.
The author: Christian Mumenthaler is CEO of reinsurance company Swiss Re and co-chair of the World Economic Forum’s Alliance of CEO Climate Leaders.
More: Insurers pay record sums for natural damage.