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In the Aftermath of Dresden: New Directions in German Flood Insurance

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  • Reimund Schwarze
  • Gert G. Wagner

Abstract

The German flood disaster of summer 2002 highlighted a dilemma concerning insurance against damages caused by natural forces. On the one hand, mindful of the rising incidence of natural disasters, private insurance companies are increasingly withdrawing coverage against natural catastrophes such as wind storms and floods. On the other, the availability of emergency relief and private donations is systematically weakening the incentive for potential victims to implement preventive measures so as to reduce the risk of damages. The dilemma is further exacerbated by the evident overestimation of the extent of damages in the immediate aftermath of natural disasters, resulting in the unnecessary withdrawal of private demand and the ad hoc reprogramming of public investment. Most of these problems could be resolved by the introduction of a general mandatory insurance against natural catastrophes. This paper proposes a practicable natural hazard insurance for Germany that is based on two principles. First, all basic natural disasters (wind storms, floods, earthquakes, etc.) would be covered by a single policy. This pooling approach would increase both the efficiency of risk coverage and the level of acceptance for the new type of insurance. Second, in the case of floods, only "once-a-century" damages would be insured. Regularly recurring floods, however, would not be covered. The state would step in as the final insurer in cases of accumulating damages, but state intervention would be strictly limited to covering extreme loss. Copyright 2004 The International Association for the Study of Insurance Economics, "The Geneva Association".

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Bibliographic Info

Article provided by The International Association for the Study of Insurance Economics in its journal The Geneva Papers on Risk and Insurance.

Volume (Year): 29 (2004)
Issue (Month): 2 (04)
Pages: 154-168

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Handle: RePEc:bla:geneva:v:29:y:2004:i:2:p:154-168

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Cited by:
  1. Paul Raschky, 2007. "Estimating the effects of risk transfer mechanisms against floods in Europe and U.S.A.: A dynamic panel approach," Working Papers 2007-05, Faculty of Economics and Statistics, University of Innsbruck.
  2. Paul A. Raschky & Reimund Schwarze & Manijeh Schwindt & Ferdinand Zahn, . "Uncertainty of Governmental Relief and the Crowding out of Insurance," Working Papers 2010-03, Faculty of Economics and Statistics, University of Innsbruck.
  3. Schwarze, Reimund & Wagner, Gert G., 2006. "The political economy of natural disaster insurance: Lessons from the failure of a proposed compulsory insurance scheme in Germany," Discussion Papers 2006/10, Technische Universit├Ąt Berlin, School of Economics and Management.
  4. E. Keskitalo & Gregor Vulturius & Peter Scholten, 2014. "Adaptation to climate change in the insurance sector: examples from the UK, Germany and the Netherlands," Natural Hazards, International Society for the Prevention and Mitigation of Natural Hazards, vol. 71(1), pages 315-334, March.
  5. Paul Raschky & Hannelore Weck-Hannemann, 2007. "Charity hazard - A real hazard to natural disaster insurance," Working Papers 2007-04, Faculty of Economics and Statistics, University of Innsbruck.
  6. Paul Raschky, 2007. "The overprotective parent - Bureaucratic agencies and natural hazard management," Working Papers 2007-03, Faculty of Economics and Statistics, University of Innsbruck.
  7. Paul Raschky & Reimund Schwarze & Manijeh Schwindt & Ferdinand Zahn, 2013. "Uncertainty of Governmental Relief and the Crowding out of Flood Insurance," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 54(2), pages 179-200, February.
  8. Luechinger, Simon & Raschky, Paul A., 2009. "Valuing flood disasters using the life satisfaction approach," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 620-633, April.

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