Compulsory natural peril cover would unlock €10bn+ in reinsurance demand: Hannover Re

Reinsurer Hannover Re believes that there could be a “meteoric”  increase in demand for reinsurance, with over €10 billion of incremental demand possible if compulsory natural peril insurance was implemented in Germany.

Germany has been discussing the need for more people to have insurance coverage against natural perils, so extreme weather and natural disasters.

The country has seen rising claims costs from severe weather in recent years, in particular from convective storms, rainfall, flooding and hail.

Only roughly half of properties in Germany have natural peril coverage at the moment, with flood and inundation particularly underinsured.

Because of this, the subject of compulsory natural peril insurance protection has been repeatedly raised in recent years.

German bank KfW had surveyed the public last year, finding that some 63% of people favoured the implementation of a compulsory insurance for property owners in the country.

Of those who objected to the idea of compulsory insurance, almost half still said that those affected by weather and natural peril impacts should bear the financial costs themselves, suggesting there could still be a willingness to pay for an affordable insurance cover in this group as well.

But, as yet, there has not been any progress on implementing the idea of compulsory natural peril insurance in Germany, but it remains on the agenda.

Germany’s insurance association, the GDV, has previously said that compulsory insurance must is a step too far and prevention and adaptation measures also need to be enforced alongside it, or the insurance industry would end up having to increase the price of cover significantly.

The GDV warned that insurance premiums for homeowners could double within a decade, if the rate of weather losses continued and climate damage delivers more pain to the industry.

It seems that Hannover Re is still keen to see such a measure pushed through, with a significant increase in reinsurance demand expected, should it get ratified.

Today, Hannover Re’s German subsidiary E+S Rückversicherung AG (E+S Rück) explained that, if the compulsory insurance measure was to get implemented, which it notes remains to be determined, it could drive a “meteoric rise in reinsurance demand.”

E+S Rück estimates that incremental demand for natural catastrophe reinsurance protection could be over €10 billion, to fill the demand for cover that a compulsory natural perils insurance scheme in Germany would bring.

Which would present a significant opportunity to the major reinsurance players based there, but also potentially to the global reinsurance market and perhaps even the insurance-linked securities (ILS) space, if pricing was sufficient to support the transfer of the risk to the capital markets.

Of course, the big German reinsurers are known for their appetites to absorb risk in their home country, which has kept rates depressed considering the loss costs faced there.

So, it’s perhaps more likely any incremental demand for catastrophe reinsurance in Germany falls largely to the biggest traditional players in the market, who can leverage the size of their balance-sheets to remain the biggest players in the country.

It’s perhaps notable, for the German loss experience, that Hannover Re still expects more than €1 billion in additional catastrophe reinsurance demand at the renewals for the country, even without compulsory insurance implemented.