4.11 Chapter Conclusion
A report on natural catastrophe insurance systems from the Word Bank in 2012 concluded that the
NAT/CAT is:
- Comparatively affordable compared to other natural disaster insurance systems;
- The relationship between the insurer and policyholder is one of integrity;
- A very high penetration rate is achieved without many public subsidies. State intervention has
only been necessary in a limited number of very severe catastrophes.
The World Bank in 2012 reported that the NAT/CAT regime is a financially viable and effective system.
By way of illustration, the last two large floods that have occurred in France did not require a financial
intervention by the government. The wide range of natural hazards covered by the NAT/CAT are to a
greater or lesser extent experienced throughout the country. That the size of the insurance pool is very
large contributes to the financial viability of the system. However, from a free market perspective, the
de facto lack of choice to participate in the NAT/CAT could be regarded as a form negative
redistribution (Faure and Bruggeman, 2007) and therefore lead to reduced economic efficiency.
The economic efficiency of the NAT/CAT relies less on market price signals, which are virtually absent,
but instead on state regulation and control of most of the financial attributes of the system. This
includes centrally set premiums that do not take account of actual risk and state organised risk
mitigation incentives through community participation in community prevention risk plans (PPRN). The
availability of commercially attractive public reinsurance to private insurers also contributes to the
state’s influence on the operation of the private sector.
Despite praise for the system, the drought of 2003 and the Xynthia windstorm, and subsequent flooding
in the Var in 2010, revealed two weaknesses of the NAT/CAT. First, there is a perceived lack of clarity in
the legal framework behind the NAT/CAT. It is seen as insufficiently transparent and, at times,
policyholders have found it to be unfair. The second significant weakness is that there are not enough
built-in incentives for risk prevention. The French government recently launched a Reform Bill to address
both of these criticisms.
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