Insuring the uninsurable The French Natural Catastrophe System

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Insuring the uninsurableThe French Natural
Catastrophe System
Paris 1910 - French Parlement
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• What perils menace France ?

• Windstorms and hurricanes
• Lothar Martin (1999) EUR 7-8 Billion
• Cyclone Hugo (1989) EUR 700-750 Million
• Floods
• Centennial flood in the Paris area (IIBRBS
  estimate)
• EUR 3.2 billion for direct damages
• EUR 1.5 billion for indirect damages
• 200 towns
• 250 000 persons

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• What perils menace France ?

• Landslides (including subsidence)
• At least EUR 2.6 billion since 1989
• Earthquake
• EUR 61 million for the small Annecy earthquake
• The Big One a major earthquake in south of
  France would cause very important damage
• Avalanches

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• Insurability of natural perils

• France has split natural perils in two categories
  
• Perils considered as insurable
• windstorms/hurricanes
• hail
• snow pressure
• freeze
• Perils considered as uninsurable
• all others (floods, earthquake, landslides,
  avalanchesetc).
• The border between these two categories is not
  fixed.

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• For uninsurable risks

• Public funds
• State systems
• Financed by taxes
• National Fund for Agricultural Disasters - 1964
  Law
• A mixed scheme
• State and Re/insurance industry
• Certain conditions fixed by the State
• Solidarity
• Natural Catastrophe Scheme - 1982 Law

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• The 1982 Law

non insurable direct material damage arising
solely as a result of a natural element of
abnormal intensity, when normal preventive
measures have not been respected The damaged
property must be covered by a property damage
insurance policy

• Prevention
• Compensation

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• Main characteristics of the
• Natural catastrophe insurance

• Solidarity obligatory extended guarantee on
  fire policy (direct damage and/or business
  interruption)
• Security guarantees replacement value of
  insured property, no time depreciation
• Factors fixed by the State
• declaration of the state of natural catastrophe,
• definition of the perils,
• deductibles,
• rating.

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Declaration of an Eventby inter-ministerial
decree
Compensation
Decree
Inter-Ministerial Commission
Prefecture
Prefecture
Mayor
Mayor
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• Inter-ministerial Commission
• Distribution of accepted files by type or peril
• (from 1982 to June 2002)

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Deductibles and Rating

• Deductibles fixed by the State and cannot be
  bought back
• Rating percentage of damage guarantees of the
  basic policy (or, failing this, 0,50 of the
  damage premium).

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• Prevention

• Risk Prevention Plans (PPR) mapping of the
  risk used to develop durable urban planning (land
  use and construction codes)
• 13,000 towns have a PPR
• Deductibles multiplicative factor applied to
  towns without a PPR where events are frequent
• 1 or 2 decrees basic deductible
• 3 decrees doubled deductible
• 4 decrees tripled deductible
• 5 or more decrees quadrupled deductible

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Market Premiums and losses Non Auto (data
source ceding company accounts as at May 2002)
M EUR

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• CCRs Role

• CCR is able to offer the market a reinsurance
  scheme with unlimited cover, backed by the State
  guarantee a guarantee of solvency.
• CCRs duty increase the responsibility of
  those involved in the scheme, to insure the
  continuity and the viability of the system.
• CCR and prevention develop an effective
  prevention policy

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Evolution of cessions to CCR(loss occurring
basis - millions of Euros)
() Estimates
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Evolution of CCRs equalization
reserve (Accounting years - millions Euros)
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• The French System is it ideal ?

• The 1982 law has shown to be adapted to the
  situation in France. However, France benefits
  from
• Moderate exposure to natural risks
• A well developed insurance sector
• While it is not adapted to every situation, the
  French system can be used as a reference. Each
  market can find its own answer to financing
  natural risks depending on its exposure to
  perils, insurance market, culture and history.

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For further documentation on the French Natural
Catastrophe Schemehttp//www.ccr.fr