Damage caused by natural hazards (e.g. on buildings) are usually covered by an appropriate insurance. So far, insurance of storm damage in forests is not common. What about the interest of forest owners in such a risk transfer?
Fig 1 - Damage in a mixed forest after a violent summer
Photo: Thomas Reich (WSL)
Coping with the effects of storm Lothar (1999) turned out to be very expensive for the Federation and the cantons in Switzerland. An international comparison shows that the financial effort in Switzerland clearly was a greater burden for the public budget than it was in Germany or in France: there the forest owners were mostly on their own when coping with the storm damages.
In other industries it is not common that the state takes over the risks from natural hazards to such an extent. Instead, the risks are transferred to insurance companies. Also in forestry, there are some insurance solutions concerning natural hazards, e.g. in Scandinavia (storm, fire, snow) and in Germany (fire).
With this project, scientists investigated whether in forestry of central Europe risks from natural hazards could be more often transferred to solidarity funds. This would allow to protect forest owners from financial losses and to disburden the state. For this, either a common insurance or a special natural hazards fund run by the forest owners would be a feasible option.
First, theoretical possibilities to cope with risks in forestry were analysed. According to managerial economics concept for risk, management risk transfer is an adequate measure to cope with events showing a high potential of damage and a low occurrence probability.
Fig 2 - Storm damage.
Photo: Thomas Reich (WSL)
In a postal survey, the Swiss forest owners’ general interest in risk transfer to cover forest damage, e.g. by insurance or a special fund, was analysed (Fig. 3). More precisely, the forest owners’ demand for potential insurance products, which were developed in cooperation with an insurance company, was investigated. The results showed some differences between farm and public forest owners. While 9% of the farm forest owners were interested in insuring their forests, 18% were undecided and 73% were not interested. Among the public forest owners, 15% were interested in an insurance, 21% were undecided and 64% did not intend to insure their forest. One quarter of the farm and 6% of the public forest owners were willing to pay at least 10 Swiss Francs per hectare and per year (Fig. 4). There was similar interest in a special solidarity fund.
The survey confirms that the demand for forest insurance products is small. This is surprising as from the responding forest owners 80% farm forest owners and 90% public forest owners respectively declared that they were affected by storm damages during the last 20 years. Moreover 50% of the respondents expected a new storm of the magnitude of Lothar during the next two decades and the majority indicated that in this case they would depend on financial support.
|Fig. 3 - Are the forest owners in general interested in insurance?|
|Fig. 4 - Maximum willingness to pay for a forest damage fund (interested and undecided forest owners).|
Simultaneously to the postal survey, representatives of forestry, forest agencies and the insurance industry were interviewed. From the point of view of these experts, economic and legal preconditions inhibit an insurance solution: on one hand the profitability of timber production is low or negative, on the other hand, in the case of a future damage event, forest owners may continue to expect financial support from the state.
These results led to the conclusion that the introduction of a forest insurance is not promising under the given legal and economical circumstances for timber production and forest management in Switzerland. A modification of the grant practice of the Federation and the cantons would be a necessary prerequisite to establish a forest insurance in Switzerland. More experiences with natural hazards in forests are then likely to increase the forest owner’s interest in risk transfer for forest storm damage.
The Swiss survey data were compared with the results from a comparable survey conducted in Baden-Württemberg/Germany. There, the forest owners were more on their own in coping with the financial consequences of Lothar. In Baden-Württemberg, more forest owners declared to be interested in forest insurance. This may be explained by the greater economic significance of forests for the forest owners and the more profitable timber production. The comparison between Switzerland and Germany revealed more interesting results.