A deductible, elsewhere in property insurance, is an object of negotiation: the client raises it to pay less, the insurer raises it to interest the insured in its own prevention, an intermediary may offer to buy it back. The natural catastrophe regime's deductible works by none of those mechanisms. It is set by regulation, it is the same for every contract, and it can neither be removed nor bought back by an additional cover. An underwriter who forgets this ends up explaining after the loss what should have been said before.
Its structure deserves describing because it is not uniform. For business property, it is expressed as a percentage of the amount of the damage, with a floor in euros that makes it bite on small losses. For business interruption, it is expressed in working days of activity, again with a floor. That double mechanism produces an effect treasuries discover late: one and the same event leaves the company carrying a sum on the property and a number of days on the trading, and the two add up.
Then comes the field's most misunderstood mechanism, that of modulation. Where a commune has been recognized several times for the same peril over a given period without a natural risk prevention plan having been prescribed there, the deductible applicable to subsequent losses is doubled, then tripled, then quadrupled. The device is coherent in intent: it pushes exposed communes to have a plan prescribed, and modulation ceases as soon as it is. It is brutal in its incidence, and it is that incidence a professional must be able to explain.
For the person penalized is not the one who could act. The company whose deductible triples has no purchase on the decision to prescribe a prevention plan, which belongs to the public authority and to the commune. It has done nothing wrong, it has changed nothing in its contract, it has paid the same surcharge as everyone else, and it bears three times the burden of its neighbor one department away. No clause of its policy explains this, because the reason does not live in its policy: it lives in its commune's history of recognitions and in the progress of a planning document.
From this follows an underwriting practice that is in no way exotic and that few companies apply. A commune's history of recognitions is public information, consultable before a lease is signed or a site is established. A multi-site operator can therefore know, site by site, which deductible will apply if the peril occurs, and that is not an insurance datum but a location datum. Knowing it does not change the contract, since the deductible is not negotiable; it changes what is provisioned and what is said to the board.
What the statutory deductible makes pointless must be added, because the market sometimes offers to sell it. A cover purporting to buy back the statutory natural catastrophe deductible would run against the text instituting it, and that text exists so that the residual burden is genuinely borne by the insured. Everything that is not the statutory deductible, on the other hand, stays ordinary: the same contract's ordinary-law covers, storm or water damage, keep their own contractual deductible, which is negotiable. On a mixed loss, two deductibles of different natures therefore apply to two parts of the same damage.
The practical lesson comes to one sentence that must be spoken before the loss and never after. The share an insured will keep on a natural event does not depend on its contract, it depends on a regulatory text and on its commune's administrative history, and it can be several times what it imagines. Saying so at placement is an ordinary act of information; saying so at settlement, while the client discovers its loss and its burden at the same moment, is what damages a ten-year relationship.
Two subsidiaries of the same food group, insured on the same program and on the same terms, are flooded in the same week by two separate floods, both recognized. Each suffers 900,000 euros of physical damage and six weeks of stoppage. The Northern subsidiary sits in a commune where a natural risk prevention plan has been prescribed since 2017. The Southern subsidiary sits in a commune recognized four times for flooding in five years, where no plan has been prescribed; the statutory deductible there is consequently multiplied by three. The group's finance director asks why two identical sites, on the same contract, are not treated alike. What should he be told, and what should be done next?
The answer rests on one point to be made at once, to cut short the search for an insurer's error: the difference does not come from the contract, and no rereading of the program will explain it, because the natural catastrophe deductible is regulatory and not contractual. It is the same for both subsidiaries in principle, and it is multiplied by three on the Southern site by a modulation mechanism sanctioning the absence of a prevention plan in a commune recognized four times in five years. The finance director must hear the consequence in its exact order: the party penalized is not the one who could act, the Southern subsidiary has no purchase on the prescribing of a plan, and modulation will cease for losses after that prescribing if it comes. Two burdens moreover add up on each site and must be presented separately, the one bearing on the 900,000 euros of physical damage and the one bearing on the six weeks of stoppage, expressed in working days: the total borne by the group is not a single subtraction. As to what should be done next, three steps are useful and one is not. Not useful: seeking to buy back the statutory deductible, which no additional cover can carry without running against the text instituting it. Useful: provisioning properly by knowing, site by site, the recognition history of the group's communes, which is public information consultable before any establishment; checking on this loss the share of damage that may fall under an ordinary-law cover of the contract, whose deductible is contractual and negotiable; and documenting the subject for the board, since this is a location datum, not an insurance datum.
- 01The natural catastrophe deductible is regulatory: it is not negotiable, not removable, and no additional cover buys it back.
- 02Two burdens add up on one event: a percentage on property with a floor, and working days on business interruption.
- 03Modulation doubles, triples or quadruples the deductible where a commune recognized several times has had no prevention plan prescribed.
- 04The party paying for modulation is not the one who could have avoided it: nothing in the policy explains it, the reason lives at the town hall.
- 05A commune's recognition history is public: it is a location datum, to be looked at before the lease and not after the loss.