Storms have caused major damage in Switzerland this summer. How building insurance works in this country.
A debris avalanche covers a road in the village of Brienz in the Bernese Oberland. On August 12, heavy thunderstorms triggered a mudslide.
Alessandro Della Valle / Keystone
In Switzerland, flooding is considered the greatest natural hazard. The images of the damage caused by storms this summer speak volumes. Heavy rain caused great destruction in the Bernese Oberland in August as well as in Ticino, Graubünden and Valais in June and July.
In general, real estate in this country is well insured against such damage. Switzerland is one of the countries in the world with the smallest insurance gaps, says Balz Grollimund, head of the disaster risk division at the reinsurer Swiss Re. In principle, the country is very well prepared for natural disasters. But there is still a blind spot when it comes to earthquakes.
Special regulations in «Gustavo cantons»
In Switzerland, most building insurance is organized by the state – except in the so-called “Gustavo cantons”, i.e. Geneva, Uri, Schwyz, Ticino, Appenzell Innerrhoden, Valais (Wallis) and Obwalden. As Michael Stahel, partner at the investment company LGT Capital Partners, explains, insurers in the cantons with a state solution are therefore only allowed to sell supplementary insurance, for example for household contents or building water.
In the Gustavo cantons, however, private insurers also cover buildings. According to Eduard Held, natural hazards expert at the Swiss Insurance Association (SVV), buildings in these cantons are also well insured against damage from natural disasters. “In principle, the insurance gap for buildings in Switzerland is very small, because even in the few cantons where building insurance is not compulsory, it is widespread.”
Natural hazard insurance is essentially a solidarity measure for the benefit of the population that is particularly at risk from natural disasters, for example in mountain cantons. According to the SVV, all insured persons pay the same premium rate for private natural hazard insurance, which is set by the Financial Market Supervisory Authority (Finma). This means that if two houses have the same value, the owners pay the same premium regardless of the location of the building. Without this regulation, insured persons in highly vulnerable areas would hardly be able to afford insurance against natural hazards.
In addition, there is the elemental damage pool in Switzerland. This is a voluntary association of 12 private insurers, which together cover around 90 percent of the market. It ensures financial compensation among insurers and prevents an insurer from getting into financial difficulties due to local damage.
High damage in densely populated areas
The floods in Ticino, Graubünden and Valais in June and July caused high damage, but according to Held, it remained manageable. The SVV has estimated this at a total of 160 to 200 million francs. Natural disasters are much more expensive when they occur in a more densely populated area in Switzerland. An example is the hail in the Locarno area on August 25, 2023, which, according to Held, caused insured damage of around 300 million francs.
Interior view of a kitchen devastated by flooding on July 20, 2024 in Lostallo in Misox, Graubünden.
Samuel Golay / TI-Press / Keystone
In Switzerland, too, insured losses from natural hazards are increasing. According to Held, the main driver behind this is the increase in insured values. The reason for this is that the real estate portfolio in Switzerland continues to grow, and buildings and technologies are also more sensitive these days. One example is solar panels on house roofs.
Insurance gap in earthquakes
There is also an insurance gap in the area of earthquakes in Switzerland. Earthquakes can, although very rarely, cause very great damage, says Grollimund. In the Basel area and in the Valais, for example, the risk of earthquakes is increased. “An earthquake like the one in Basel in 1356 would today cause economic damage amounting to 80 to 100 billion francs,” says Held. Only a small part of this would be insured, the majority of it would be left to the state. The SVV estimates that only around 15 percent of the earthquake risk is insured.
Over the years, there have been repeated attempts to address the issue. Only in December last year did the Federal Council propose an amendment to the Federal Constitution sent for consultationwhich deals with the financing of building damage in the event of an earthquake. This fulfills a parliamentary motion according to which building owners can be required by the federal government to jointly finance damage to buildings in the event of an earthquake. The federal government could therefore collect up to 0.7 percent of the building insurance sum.
The SVV, however, rejects the proposal. It has the character of an additional tax. In addition, earthquake risks can be insured privately.
