4.4 Mitigation Incentives
Other than the application of insurance deductibles at the point of claim there are few incentives built
into the French system to encourage policyholders to invest in flood protection or minimisation. This
has the effect of reducing the potential economic efficiency of the system. Moreover, the state is
expected to ultimately pay compensation except for high risk areas where state responsibility has been
specifically rescinded. For example, there is a system in place for flood risk zoning to discourage
development in high-risk areas (Kok & Barendregt, 2004 from Botzen & Van Den Bergh, 2008).
The state does, however, retain a high degree of control of public natural catastrophe compensation.
Among several, one of its main tools is the decision to declare a public disaster. Flood compensation is
only triggered when the state declares a flood disaster and the region a disaster zone. The decision is
made by an inter-ministerial commission that attempts to make an objective assessment so that
policyholders living in the same street will be treated equally regardless of their specific private
insurance company’s loss adjustment policy. As the conditions that trigger flood compensation
payments are not objectively predefined and thus are contingent on a political decision process, the
NAT/CAT has been criticised as lacking public transparency. In recognition of this weakness,
legislative attempts have been made recently to more clearly define when a flood or other natural
hazard phenomenon is a disaster of sufficient impact to merit state payouts (World Bank, 2012).
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