Natural disaster insurance: a matter of financial sustainability

In this context, the natural disaster compensation scheme (Cat-Nat), created in 1982 to cover risks that cannot be insured solely by private insurers, is increasingly in demand. Based on an innovative public-private partnership, notably involving the Central Reinsurance Fund (CCR), this scheme has compensated 3,6 million claims for over €50 billion (excluding automobile). It ensures risk pooling among policyholders, solidarity between regions, and guarantees rapid compensation at a still relatively low cost.

The anticipated increase in the cost of natural disasters, estimated at between 47% and 85% by 2050, jeopardizes the financial sustainability of the system. This necessitates strengthening monitoring tools, better consideration of prevention issues, and increased accountability from all stakeholders. The Court therefore makes eight recommendations aimed at improving risk information, strengthening the financial robustness of the system, and better coordinating prevention policies, in order to preserve the medium- and long-term sustainability of the natural disaster compensation scheme.

Climate damage insurance: an original system facing increasing risks

For over forty years, France has built around the Central Reinsurance Fund (CCR) an original system of natural disaster insurance, based on a public-private partnership combining market-based property and casualty insurance, public reinsurance, and a state guarantee. The Cat-Nat scheme, created in 1982, takes the form of a mandatory extension of coverage for property and casualty insurance contracts (home or auto) and covers natural phenomena of abnormal intensity that are not insurable by the market alone, primarily floods, drought due to clay shrinkage and swelling (RGA), earthquakes, and cyclonic winds in overseas territories, excluding storms, hail, snow, or fires, which are largely covered by private insurance. It is based on a uniform surcharge on private insurance contracts, requires the triggering of a prior procedure for recognition of the state of natural disaster and provides for the central intervention of the CCR, whose reinsurance, backed by the unlimited guarantee of the State, is used by almost all insurers.

While this system has so far met its objectives, it faces increasing risks due to the growing impact of climate change: the marked rise in claims, particularly those related to drought, has already led to a significant increase in the surcharge in 2025, and CCR projections anticipate a substantial increase in the cost of natural disasters by 2050, ranging from +47% to +85% in constant euros. At the same time, the gradual expansion of coverage under the scheme and the uncertainties surrounding the recognition of a state of natural disaster could further increase the burden on the system. In this context, tensions are emerging regarding risk pooling across the country, as some insurers may be forced to withdraw from the most exposed areas.

The central reinsurance fund: a solid guarantor of the territory's insurability, but weakened by climate change

Since the creation of the Cat-Nat scheme, the Central Reinsurance Fund (CCR) has established itself as the cornerstone of insurability across the entire territory in the face of climate-related risks. While the initial work of the insurability observatory, set up by the CCR at the end of 2024, shows that in mainland France insurability remains generally preserved, with nearly 98% of municipalities not experiencing any particular strain, it also reveals vulnerabilities in the overseas territories, where the presence of insurers is more limited and insurance coverage is weaker. In this context, the Court emphasizes the importance of ensuring the reliability of the annual publication of the insurability observatory's report, specifying coverage across the entire territory, by risk and at the sub-municipal level, and of improving information for policyholders by facilitating, particularly through digitalization, recourse to the central pricing office in the event of a refusal of insurance.

The CCR (Central Reinsurance Fund) also relies on a robust financial model, based on public reinsurance widely used by insurers and backed by a state guarantee. However, the upward trend in climate-related claims, particularly those linked to drought, has led to a sharp depletion of reserves, increasing the risk of triggering the state guarantee. While the premium increase implemented on January 1, 2025, is already helping to replenish reserves, the Court notes that the financial sustainability of the scheme does not appear fully guaranteed in the medium term under plausible but more unfavorable assumptions than those currently used by the CCR in its prudential exercises. It therefore recommends expanding the range of stress tests in the next risk assessment exercise, notably by taking into account cycles of high claims over several consecutive years and less favorable premium trends.

Faced with the rise in climate-related disasters, levers must be mobilized now to preserve the "Cat-Nat" scheme.

Faced with the rise in climate-related disasters, preserving the natural disaster compensation scheme requires immediate action on several fronts. The scheme's sustainability hinges first and foremost on regularly reviewing the desired evolution of the surcharge rate, with the possibility of exceptional adjustments in the event of a sharp increase. The Court then reiterates that prevention and adaptation are essential conditions for the insurability and long-term viability of the scheme: this notably requires having, at a detailed geographical level, a forward-looking risk map consistent with the reference warming trajectory for climate change adaptation, published on Géorisques and included in the mandatory documentation for real estate transactions; it also requires producing risk prevention plans for all at-risk areas and keeping them up to date, as well as developing the "build back better after flooding" program, with co-financing from insurers, should its evaluation prove successful. Finally, the Court emphasizes that strict oversight of the natural disaster compensation scheme is indispensable. Some disasters that are still exceptional today will gradually become more frequent: it is necessary to strengthen the independence of the interministerial commission for the recognition of the state of natural disaster by opening its composition to several qualified individuals and to broaden its mission to include the publication of a periodic review of categories of events falling outside the scope of the regime, as soon as the increase in their frequency would cause them to lose their abnormal character.

Illustrative image of the article via Depositphotos.com.