AMRAE backs calls for French nat cat pool charges to better reflect risk profile

AMRAE told CRE that it supports reform of the system, and is particularly keen to see it better reflect the risks companies face. But it has some concerns about the role played by insurance companies in the regime. France's nat cat pool is currently funded by a flat charge that applies on all property insurance contracts. The current flat rate system has been criticised by bodies such as AMRAE because it fails to reward buyers that implement effective risk management or whose risks are located in areas with low exposure to nat cats. The French association of commercial insurers and mutuals, AFA, published a white paper last week calling for underwriters to have more freedom to set rates charged to large insurance contracts based on the buyer's risk exposure.hideIn its white paper AFA calls for reform and the promotion of two pillars that it believes would build an effective natural catastrophe regime. The first pillar focuses on prevention. The association wants France to adopt a number of measures to strengthen risk prevention implemented by local governments and other entities. The second pillar covers the mandatory insurance regime, with AFA proposing 11 changes to the current set up. The first is to allow underwriters freedom to set premium rates for the nat cat element of property contracts that cover more than €50m worth of damages. In a move that could create extra costs for companies, AFA also wants the inclusion of risk management in plans drafted by the state to reduce the effects of nat cat risks. It implies that companies located in exposed areas would have to perform a risk assessment of their exposures and implement business continuity plans. AFA also proposes changes to ten-year mandatory insurance coverages that apply to newly constructed buildings, as well as the establishment of clearer definitions for risks covered by the nat cat guarantees included in property contracts. The raft of proposals aim to increase the responsibility of insurance buyers to prevent nat cat risks, AFA said in a statement. In a written response, AMRAE told CRE that it favours a system where the quality of risks faced by buyers is taken into account. But the association also noted that the current system has a flaw not addressed by AFA's proposal. Currently insurance companies that collect mandatory nat cat-related fees on property coverages can chose between ceding the risks to CCR, the state-owned reinsurance company that manages the nat cat pool funds, or retaining them. By retaining the risk, and therefore the premium, insurance companies can make savings because they do not incur the cost of setting up reinsurance contracts with CCR. AMRAE fears that insurers not transferring risks to the CCR may not be able to cover catastrophic losses while also taking funds away from the national nat cat system. "AMRAE denounces this imbalance in the implementation of France's nat regime," wrote the association. It wants the insurance market to make more contribution to the system. Alternatively, it wants buyers to be allowed to transfer nat cat risks directly to the open reinsurance market. In a document sent to the European Commission in 2013, which the association says is still valid, AMRAE acknowledged the benefits brought by France's nat cat regime. However, it notes that it prevents efficient insurance programmes and makes it more difficult to differentiate nat cat damages from other kinds of losses. The AFA also estimated this week that the costs of nat cat events in France between 2015 and 2040 will be almost twice as high as in the previous 25-year period, reaching €92bn.

AMRAE backs calls for French nat cat pool charges to better reflect risk profile

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