In France, the Natural Catastrophe Compensation Scheme, commonly known as NATCAT, has been a cornerstone of disaster management since its establishment in the 1980s. This scheme guarantees compensation for material damage caused by natural phenomena such as floods, droughts, and more. French law mandates that all insurance policies covering property in France—whether for motor fleets, industrial risks, or household policies—include coverage for such damages.

Overview of the Scheme

The NATCAT scheme is a collaborative effort between the public and private sectors. It is funded through an additional premium applied to all property insurance contracts. This premium reflects the principle of solidarity, as all policyholders contribute to the financing of the scheme, regardless of their individual risk exposure. The French public reinsurer, Caisse Centrale de Réassurance (CCR), provides reinsurance with unlimited coverage, backed by a state guarantee.

Key aspects of the scheme include:

  • Each French insurer has the option to reinsure these risks with the CCR.
  • Insurers transfer these additional premiums to the CCR, either partially or in full.
  • The French government guarantees the CCR to ensure the payment of claims.

Rising Costs and Adjustments

The NATCAT scheme faces increasing financial pressures due to the rising costs of natural disasters. The total cost of damage from natural disasters in France was €10 billion in 2022 and €6.5 billion in 2023, both significantly higher than the annual average of €3.7 billion recorded between 2010 and 2019. To address these financial challenges, the French government will increase the additional premiums applied to property damage policies from January 1, 2025.

New Rates Effective January 1, 2025

  • For non-life policies (commercial and residential): The additional premium rate will rise from 12% to 20%.
  • For motor insurance (theft and fire coverage): The rate will increase from 6% to 9%.

These new rates were announced by the French government on December 28, 2023.

Reasons for the Increase

The increase in rates aims to ensure the long-term stability of the NATCAT compensation scheme. This adjustment is necessary due to the structural growth in the frequency and intensity of natural disasters, particularly floods and droughts.

Historical Data and Impact

From 1982 to 2022, the annual average cost of natural disaster claims was €1.2 billion. However, between 2016 and 2022, this average rose to €2.5 billion. Despite a total payout of €1.88 billion in 2022, the scheme has been running at a deficit since 2016. The cumulative deficit from 2015 to 2019 is €1 billion, with a notable deficit of €439 million in 2017. Consequently, the CCR’s reserves have decreased by 30% over the past five years.

Implications for Clients

The increase in rates will lead to higher premiums for all clients starting January 1, 2025. It is important to note that these changes do not directly benefit insurers, as they are required to transfer a significant portion of the premiums to the CCR, which manages the scheme.

Source:  Verlingue

Further Information

For more details on these changes and their implications, you can refer to the following sources: