Damage and losses caused by climate change are increasingly uninsurable

This is detailed in the report ‘Impact of Climate Change on Non-Life Insurance’ published by the AFM today.

In brief

• More damage and losses due to climate change
• 800,000 homes at risk of subsidence
• Property damage due to flooding is not always covered
• Insurers should ensure that policy conditions are clear
• Solutions needed for uninsurable damage and losses

More damage and losses due to climate change

Due to climate change, weather extremes are occurring ever more frequently. In the first decade of this century, the average annual amount in damage and losses incurred due to flooding in the EU came to 4 billion euros. It is estimated that this will have increased to 23 billion euros per year by 2050. Insurers do not always provide cover for such climate-related damage and losses. For example, hail damage to solar panels and the resulting losses because less power is generated by the panels are often not covered.

800,000 homes at risk of subsidence

Consumers can no longer take out insurance against damage to their home due to subsidence. In 2016, four insurers provided cover for damage to homes due to subsidence, but since last year not a single insurer offers such cover. The Netherlands will increasingly experience long periods of drought. It is estimated that 800,000 homes are at risk of subsidence and collapse due to decreasing groundwater levels. As the average cost of this damage is estimated to be 64,000 euros, this may have a huge financial impact on households. The AFM feels that consumers in high-risk areas need to be aware of this risk and need to take this into account in their financial planning when they buy or renovate a home.

Property damage due to flooding is not always covered

The cost of the property damage incurred by consumers in Limburg due to the recent flooding triggered by heavy rainfall will likely add up to several hundreds of millions of euros. Some insurers exclude flood damage under their insurance policies for businesses. Entrepreneurs affected by the flooding were often not aware of this. Most affected consumers were covered for the property damage because it was caused by local rainfall. But if their home had been flooded by the river Meuse, they would not have been covered. Most consumers are not aware of this distinction made in insurance policies.

Insurers should ensure that policy conditions are clear

Consumers are currently faced with complex insurance policies with limitations, exclusions and damage prevention requirements. Furthermore, insurers regularly change their policy conditions. Consumers should carefully check their insurance cover for climate-related damage and losses, because there are big differences between policies. They can also turn to an insurance adviser for assistance.

Insurers should clearly communicate what is covered by their insurance policies, including when they change policy conditions, so that consumers and entrepreneurs have a clear understanding of which types of damage and losses are covered.

Solutions needed for uninsurable damage and losses

Due to the unpredictability and impact of climate change, it is becoming increasingly difficult to take out insurance against climate-related damage and losses. As the cost of climate-related damage and losses will increase significantly in the coming years, the AFM calls on the Dutch government and the insurance sector to jointly look for solutions to this growing problem.