Title: Navigating Climate Challenges: How Municipalities are Tackling Floods and Droughts

Title: Navigating Climate Challenges: How Municipalities are Tackling Floods and Droughts

On January 1st, the mayor of Breil-sur-Roya enacted a controversial order to prevent natural disasters, reflecting the municipality’s struggles post-storm Alex in 2020. The insurance landscape for local authorities in France is increasingly challenging, with many facing rising costs and contract terminations. Stakeholders are encouraged to collaborate on solutions, including improved prevention strategies and risk distribution. Proposed reforms aim to address the unsustainable insurance model amid escalating climate-related damages projected to increase significantly by 2050.

A Bold Move Amid Rising Challenges

On January 1st, the mayor of Breil-sur-Roya took a remarkable step that stirred significant conversation: he issued an order prohibiting any natural disasters from occurring in his municipality located in the Alpes-Maritimes. While this may sound like a humorous solution, the mayor admits it’s a desperate measure. The reason behind this unusual decision stems from the devastation caused by storm Alex in 2020, which left the municipality struggling to secure its buildings. This predicament is not unique; estimates suggest that between 1,000 and 2,000 localities across France face similar challenges.

Understanding the Insurance Dilemma

Alain Chrétien, the mayor of Vesoul and author of a report for the Association of Mayors of France (AMF), highlights the complexity surrounding property damage insurance for local authorities. This insurance, although optional, is vital for municipalities to qualify for compensation under the natural disaster scheme (CatNat). The crux of the issue lies in the limited number of contributors who must shoulder the burden of exceedingly high damages, complicating the insurance landscape.

A recent online survey conducted by the Senate Finance Commission revealed troubling statistics: 20% of the 713 local authorities that responded reported having their contracts terminated by insurers in 2023, 95% faced rising premiums, and 27% saw an increase in deductibles. While the surge in climate disasters and social movements has highlighted these issues, the roots run deeper.

Approximately 35,000 municipalities in France are primarily insured by two major players—Groupama Assurance and SMACL, a subsidiary of Maif—who collectively command two-thirds of the market. Thierry Langreney, president of the Ateliers du Futur, notes that a price war emerged in the early 2000s, resulting in artificially low premiums despite rising claims. This untenable situation led to a decline in competition within the market.

SMACL acknowledges the existence of this price competition since the early 2000s, asserting that they have maintained higher rates than competitors in the property damage sector from 2011 to 2023. They attribute the rising costs to the tendency of local authorities to prioritize lower prices over comprehensive coverage.

The president of the Ateliers du Futur points out that both insurers and local authorities have imposed excessive constraints, further exacerbating the situation. The frequency of extreme weather events, such as storm Alex and the severe flooding in Hauts-de-France, alongside damages from social movements, has made the insurance landscape increasingly precarious. The disengagement of reinsurers has also contributed to the complexity, as they find the risks in France too significant to cover.

In 2022, the climate-related costs for insurers in France reached an alarming 10.5 billion euros, the highest in over two decades. SMACL reported that their claims quadrupled from 2021 to 2022, surpassing 100 million euros. This surge has profoundly affected the balance between premiums and claims, leading to increased insurance costs overall. SMACL justifies the price hikes as necessary for maintaining the sustainability of their business model in light of these challenges.

Seeking Collaborative Solutions

Amid this crisis, there is a glimmer of hope: stakeholders are being urged to collaborate. SMACL emphasizes the importance of shared responsibility among insurers, local authorities, and the State to establish effective and sustainable solutions promptly. Thierry Langreney suggests a blend of solidarity and accountability in addressing the challenges ahead.

One proposed solution is for local authorities at risk to invest in prevention strategies through the partnership development project (PPA), which aims to better equip communities for future climate challenges. However, it’s concerning that nearly 25% of current prevention plans are outdated, relying on historical data that no longer reflects the realities of climate change.

Moreover, stakeholders advocate for increased competition and greater flexibility in negotiations between local authorities and insurers. Alain Chrétien notes that the Ministry of Finance is working to amend the Public Procurement Code to facilitate this process.

Additionally, the Chrétien-Dagès report from the AMF recommends implementing a three-tier system to distribute risk more effectively. This system would allow municipalities to self-insure for minor incidents while larger claims would be managed by insurers. The State would step in for catastrophic events under the CatNat scheme, which currently sees compensation divided between insurers and the Central Reinsurance Fund (CCR).

Although the Minister of Territorial Development, François Rebsamen, declined to comment, Alain Chrétien plans to reach out to him for discussions on these pressing issues. The outlook for municipal insurance remains grim, with projections indicating that damages from climate change-related disasters could rise by 40% by 2050.