There is no “one size fits all” solution to natural disasters

Interview with Oleksandra Hrendey, Policy Manager at Insurance Europe to Vicky Gerasimos

As he explains, compulsory insurance is not a panacea but part of a wider system in which all parties involved will have joined forces.

Key points in her interview are as follows:

– We are getting to the point where some risks in some areas are becoming difficult to manage by just one sector (public or private).
– In France and Spain, synergies have been created between the private and public sectors that work, however even there they are looking for even more strengthened systems in the risks in question
– Mitigation and adaptation actions are vital to minimize Nat Cat risks and to reduce society’s exposure and vulnerability to these risks

1. The great natural disaster that occurred in Thessaly due to the floods led the Greek government to compulsory insurance for businesses with a turnover of more than 2 million euros. Do you think it should be compulsory to insure homes and businesses against events such as earthquakes, fires and floods?

Across Europe, there is an urgent need to identify the best ways to reduce the proportion of people unprotected from natural disasters. This is the so-called “gap” of protection. Compulsory insurance may be one way to close the gap. However, it is not a panacea on its own, but must be part of a wider discussion on how to achieve the goal of fully protecting the highest possible number of people and their livelihoods through a system that is fair and economically sustainable.
In my personal view, a key objective of such a system is to provide incentives to reduce risk. This can be achieved by incentivising through underwriting, by imposing restrictions on the construction of new buildings in high-risk areas, or by strengthening construction rules for buildings. Such a system also requires the active participation of all key stakeholders – private insurance companies, all levels of government, and of course the insured. Ensuring the full commitment of all vested interests in the process is paramount to the success of disaster risk programs.

2. Is property insurance compulsory for citizens of other European countries? Which country model do you consider successful?

In Europe, property insurance is usually not compulsory, but in some EU member states, natural disaster cover is combined with property insurance, resulting in a significant proportion of households being covered against natural disasters.

This is happening in France and Spain. These two countries have successful public-private partnerships that have worked well for decades, where premiums are collected by insurers, but losses arising from natural disaster events (Nat Cat) are reimbursed by a central body funded by the proceeds insurance premiums. However, it should be emphasized that even in these countries there are ongoing discussions on how the current system can be strengthened taking into account the increase in frequency and severity of climate events. In France, for example, the industry is of the opinion that making the system more robust and responding to the challenges posed by climate change requires strengthening its funding and accelerating prevention efforts.

It is also important to stress that there is no ‘one-size-fits-all’ solution, meaning that no single system would work in all EU countries. This is due to differences in national circumstances, particularly in terms of risk exposure, insurance penetration , history, culture and other characteristics of the market, which must be duly taken into account. Therefore, any approach to addressing the natural disaster protection gap must carefully consider these different factors.

3. “Climate change is a reality that will make it increasingly difficult for insurers to offer certain types of coverage at affordable prices unless things change.” This is a statement you recently made on ERT television. What needs to change to ensure homeowners can get insurance coverage?

Climate change is increasingly testing the ability of insurers to cover certain risks affordably. As a result, but also because of the many harmful consequences of climate change (on human life, biodiversity, etc.), one of the priorities must be the urgent and significant reduction of greenhouse emissions. Although this is difficult, this is absolutely necessary. At the same time, prevention efforts to adapt to the consequences of climate change need to be strengthened. Mitigation and adaptation actions are therefore vital to minimize Nat Cat risks and to reduce society’s exposure and vulnerability to these risks.

This serious situation is likely to make public-private partnerships more important than ever, as we reach the point where some risks in some areas become difficult to manage by one sector alone (public or private). Therefore, cooperation between the public and private sectors is essential to effectively address these challenges.

4. Can the insurance-reinsurance market cover losses as large as that of Thessaly? Does he have the funds?

I am not in a position to comment on the specific situation in Thessaly However, as I have already mentioned, the ability of the industry to cover such risks in the future will increasingly depend on the right mitigation and adaptation measures or on the right level of cooperation between the public and private sector, as well as individuals. Again, the escalating intensity and frequency of disaster events underscores the need for an integrated multi-agency approach.

“The problem with climate change is that we don’t insure ourselves”