2 PUBLIC PRIVATE BALANCE THE NAT/CAT IS AN EXAMPLE OF A MULTI-LE...
4.2 Public Private Balance
The NAT/CAT is an example of a multi-level public-private system. Private insurance companies are
responsible for the day-to-day operation of the system, including claims management, in accordance
with the insurance policy sold. They are able to retain a level of risk of their own books but often prefer
to pass risk upstream to the French state. The Caisse Centrale de Réassurance (CCR) is a state
owned reinsurance company. It offers unlimited reinsurance under the NAT/CAT system. However, the
CCR is not the only player in this market; the French system permits insurers to reduce their risk
exposure by buying reinsurance either from a private reinsurance market such as Lloyd's or from the
publicly funded CCR. That relatively cheap public reinsurance is available creates a perverse incentive
for the higher risk policies to be insured with the state owned CCR. If high risk policies alone accrue to
the public sector and low risk policies are then cherry-picked by private insurers, the NAT/CAT
insurance regime in France is at risk of becoming skewed in favour of private profit (Paudel, 2012). The
regime has been criticised that its public-private structure results in situation where profits can be
privatised while insurance losses are covered from the public purse in the form of state backed
reinsurance. According to Paudel, this issue would not occur in a fully public system. For example,
under the Spanish Consorcio de Compensacion de Seguros (2012) both high and low flood risk
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Flood risk is the main type of natural disaster (Swiss Re, 2012). Therefore it is valid to also analyse national natural
catastrophe insurance systems to shed light on national flood insurance systems.