German insurers reject adoption of French nat cat system
As insurers count the cost of flooding in southern Germany, the debate about how to pay for losses from weather events is cracked wide open
German insurance association GDV has strongly rebutted suggestions that Germany should adopt the French nat cat system for dealing with losses from weather events, such as the flooding that has devastated southern Germany in recent days.
The GDV pointed out that the French model is creaking under the strain of rising climate change-related losses, that the costs are being seriously underestimated by supporters of the idea and that it would actually by unconstitutional in Germany because of the degree of state involvement that it would require.
The association once again stressed that a mandatory insurance scheme is not the answer but rather efforts and resources need to be focused on loss prevention and risk mitigation efforts.
“In the debate about mandatory insurance for natural hazard damage caused by heavy rain and flooding, the French Cat Nat levy has been frequently referred to in recent days, with the costs of German residential building insurance including natural hazard cover,” said the GDV in its latest statement.
“This comparison is dubious and simply wrong. You can compare systems – but then please do so correctly,” warned GDV deputy general manager Anja Käfer-Rohrbach.
“A one-to-one transfer of the French Cat Nat system in Germany would result in nothing less than a complete paradigm shift in the insurance landscape and in the cooperation between the state and the insurance company,” she added.
France has operated a mixed system for natural hazards since 1982. In addition to private sector insurance cover, which is similar to the standard residential buildings insurance in Germany, there is also the Catastrophe Naturelles (Cat Nat) system, set up and ultimately reinsured by the French state to cover natural hazards.
The GDV pointed out that the system in France has been in deficit since 2015. The French Ministry of Finance therefore published urgent recommendations in April 2024 to stabilise the system.
“France’s system is characterised by extensive state intervention and centralised decisions. The French state comprehensively defines the legal framework of the system, defines the affected hazards and the triggering events, determines prices, deductibles and coverage and is liable for unlimited damages through the public reinsurer Caisse Centrale de Réassurance (CCR),” explained the German association.
As Käfer-Rohrbach further explained, the CCR is the lynchpin of the French system. Not only does it offer insurers unlimited stop-loss reinsurance protection with a state guarantee, it also reimburses insurers for half of the damage from any other natural catastrophes such as hail and storms via proportional reinsurance.
According to Käfer-Rohrbach, the “cheap tax put in the window” is thus really bought through extensive risk assumption by the state and CCR. The state is also always obliged to intervene if the damage burden for CCR exceeds a certain amount, which is referred to as the state intervention threshold.
“The French Cat Nat system is not a risk-based private sector insurance system in the sense of the European supervisory regime Solvency II,” said Käfer-Rohrbach.
She explained that there is no contractual right to compensation from the Cat Nat system. Compensation will only be made if the event is declared a natural disaster by an inter-ministerial commission in Paris.
“There is no direct legal claim against the Cat Nat system in the sense of contract law. Private individuals do not pay a risk-based premium for natural hazards, but rather a legally regulated levy of currently 12% of the property insurance premium,” said Käfer-Rohrbach.
And, as noted above, these taxes will be drastically increased to 20% in 2025 because the system has been in deficit since 2015 due to climate change and extreme weather events, she added.
“Last but not least, the Cat Nat system has a clear constitutional basis,” said Käfer-Rohrbach. “Article 12 of the preamble to the French constitution of 27 October 1946 states: ‘The nation declares the solidarity and equality of all French people in bearing the burden resulting from national disasters.’ A comparable constitutional regulation does not exist in Germany, so any step towards Cat Nat would be fraught with constitutional risks.”
The GDV said a positive about the French system is that the natural hazard risk is viewed holistically.
“It deals with insurance issues as well as government involvement in major loss events. The so-called Barnier Fund (Fonds de Prévention des Risques Naturels Majeurs), which is intended to promote adaptation and protective measures, is ultimately part of the system. Unfortunately, the realisation that “insurance” alone is not enough has still not reached the [German] federal states in particular,” concluded the GDV.
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