A general introduction to the insurance and reinsurance markets in Germany

All questions

Year in review

In 2020 and 2021, a number of local German courts delivered contradicting decisions on the question of cover in business-interruption cases related to the covid-19 pandemic. Now, within the first weeks of 2022, helpful guidance has come from the German Federal Supreme Court (BGH) when it delivered its first judgment dealing with the issue. Its judgment of 26 January 2022 – IV 144/21⁵² – brings certainty in favour of underwriters. The standard set of German insurance clauses for business interruption contains a closed catalogue of infectious deceases under the German Infections Protection Law Act (IfSG). The BGH has now confirmed that this catalogue of diseases is exclusive and not open to include further diseases. Neither 'covid-19', 'Sars-CoV-2', nor 'Sars-Cov' is listed in the catalogue.

The BGH upheld the decision of the Court of Appeal while differing in reasoning. The Court of Appeal had held that insurers must prove that the closure of the business (e.g., a restaurant) needs to be the result of an intrinsic risk (e.g., a risk of disease caused by vermin) and could not be the result of a global pandemic. In contrast, in clearly adhering to the enumeration of diseases of the IfSG catalogue, the BGH has taken a more formal approach, which brings legal certainty.

Less welcome for German underwriters, a catastrophic flood in July 2021 in the area of the Ahr valley, a picturesque and famous wine region in the state of Rhineland-Palatinate, capped their most expensive year of natural disasters ever, with insured losses of over €12.5 billion, €8 billion of which was from the Ahr valley floods alone.⁵³

Furthermore, the significant issues of cyber security/blackout and sustainability continued to influence the insurance industry across all its sectors.⁵⁴

Outlook and conclusions

In 2022 the development of ESG-aligned activities in the industry sector will once more play a key role. As of January 2022, EU Regulation 2021/2178 on disclosure of taxonomy-eligible and non-eligible economic activities applies.⁵⁵

Outside the strict EU regime, it will be interesting to follow the developments driven by different industries themselves, such as the Poseidon Principles for Marine Insurance⁵⁶ and the Net-Zero-Coalition.⁵⁷ One can only hope that in all the efforts to reduce CO2 emissions, there will not be too many overlaps of the different approaches taken.

Finally, 2022 might see the development of new insurance products that cover the climate-related risks of the insured. At the time of writing, no German private entity has been ordered to pay compensation related to damages caused by climate change. One potential model case is pending in second instance in the Supreme Court of Hamm. In this matter, a Peruvian farmer is suing the energy supplier RWE for compensation for the cost of protective measures allegedly necessary to protect the farmer's property from a nearby glacier, which the farmer says is producing more meltwater as a result of RWE's CO2 emissions.⁵⁸ If such climate-related liability is upheld by a German court, the need for insurance cover is obvious and it remains to be seen whether the German market would welcome such an opportunity, and how conditions and premiums can frame the risk.