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

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  • Reimund Schwarze

    (Research Director, German Institute for Economic Research (DIW Berlin))

  • Gert G Wagner

    (Professor, Berlin University of Technology and Research Director, DIW Berlin)

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. The Geneva Papers on Risk and Insurance (2004) 29, 154–168. doi:10.1111/j.1468-0440.2004.00279.x

Suggested Citation

  • Reimund Schwarze & Gert G Wagner, 2004. "In the Aftermath of Dresden: New Directions in German Flood Insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 29(2), pages 154-168, April.
  • Handle: RePEc:pal:gpprii: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. 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: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 71(1), pages 315-334, March.
    3. Paul Raschky & Reimund Schwarze & Manijeh Schwindt & Ferdinand Zahn, 2013. "Uncertainty of Governmental Relief and the Crowding out of Flood Insurance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(2), pages 179-200, February.
    4. Reimund Schwarze & Gert G. Wagner, 2006. "The Political Economy of Natural Disaster Insurance: Lessons from the Failure of a Proposed Compulsory Insurance Scheme in Germany," Discussion Papers of DIW Berlin 620, DIW Berlin, German Institute for Economic Research.
    5. 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.
    6. Eugene N. Gurenko & Wael Zakout, 2008. "Mitigating the Adverse Financial Effects of Natural Hazards on the Economies of South Eastern Europe," World Bank Other Operational Studies 26564, The World Bank.
    7. Paul Raschky, 2007. "The overprotective parent - Bureaucratic agencies and natural hazard management," Working Papers 2007-03, Faculty of Economics and Statistics, University of Innsbruck.
    8. Véronique Bruggeman & Michael G. Faure & Miriam Haritz, 2008. "Schadensersatz für Opfer von Naturkatastrophen: ein Vergleich zwischen Belgien und den Niederlanden," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 77(4), pages 18-43.
    9. Paul A. Raschky & Reimund Schwarze & Manijeh Schwindt & Ferdinand Zahn, "undated". "Uncertainty of Governmental Relief and the Crowding out of Insurance," Working Papers 2010-03, Faculty of Economics and Statistics, University of Innsbruck.
    10. 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.
    11. Osberghaus, Daniel, 2015. "The determinants of private flood mitigation measures in Germany — Evidence from a nationwide survey," Ecological Economics, Elsevier, vol. 110(C), pages 36-50.

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