French CatNat scheme (natural disaster compensation)

The 2022 drought, which France Assureurs put at 1.9 to 2.8 billion euros of building damage against 2.12 billion for the 2003 drought, the previous record, shows the risk the scheme pools at a uniform rate: the slow cracking of houses on clay. The CatNat scheme is a public-private hybrid mechanism created by the Act of 13 July 1982 that automatically extends every property and casualty contract to cover natural disasters recognized by ministerial decree. Its funding rests on a uniform surcharge, set at 12 percent of property premiums until 31 December 2024, then raised to 20 percent on 1 January 2025, the first increase since 1999. The direct insurer compensates the insured, then may reinsure with the Caisse centrale de réassurance, a company wholly owned by the state and backed by its unlimited guarantee. The scheme explicitly aims to cover risks that the private sector alone would deem uninsurable, notably flooding, drought-related clay shrink-swell, mudflows and earthquakes. Its distinctive feature is the uniform rate applied to all insureds regardless of their actual exposure, a deliberate solidarity choice that introduces cross-subsidization between unexposed zones and exposed ones. The counterpart of this universal accessibility is an absence of pricing incentive for prevention. The scheme ran a technical deficit from 2016, its reserves having fallen sharply, which prompted the surcharge increase expected to bring the scheme about 1.2 billion euros in additional annual resources.