Insurability of natural disaster risks in France: what the Insurability Observatory really measures

The insurability of natural risks in France: what the first report of the Insurability Observatory actually measures

Are insurers still present in areas exposed to natural hazards? Yes, answers the first report from the Natural Risk Insurability Observatory. But do the exposed properties remain insurable under economically acceptable conditions? The answer is far less obvious. While the report sheds valuable light on the territorial presence of insurers, it measures neither the evolution of premiums, nor that of deductibles, nor subscription refusals or policy cancellations. In other words, it provides information on the existence of insurance coverage, but much less on its actual accessibility. This nuance is far from trivial: as climate risks intensify, the central question becomes the sustainability of risk transfer among policyholders, insurers, and the community.

1.       Introduction

The publication of the first report by the Natural Risk Insurability Observatory marks an important step in the French debate on the consequences of climate change for the insurance system. Created at the request of the ministries responsible for Ecological Transition and for the Economy and Finance as part of the third National Climate Change Adaptation Plan (PNACC 3), this observatory aims to monitor the territorial dynamics of property damage insurance in the face of intensifying natural hazards.

This initiative comes in a specific context. The increasing frequency and intensity of natural disasters, the continuous rise in climate-related claims, the difficulties observed in certain foreign markets, as well as the conclusions of the Langreney report published in 2023, have fueled growing questions regarding the French system's ability to sustainably maintain widespread access to insurance. Moreover, the report explicitly recalls that the Langreney findings already pointed to a "reduction in the number of active insurers, dissuasive underwriting conditions, and even insurers withdrawing."

The conclusions of this first edition appear broadly reassuring. According to CCR, home insurance remains accessible throughout the territory studied. No municipality reportedly presents a situation of severe stress that could jeopardize access to insurance, and insurers remain present even in areas most exposed to natural hazards.

However, these conclusions warrant careful examination. Not because they are inaccurate, but because they are based on a specific definition of insurability that encompasses only a portion of the concerns expressed today by households, businesses, local authorities, investors, and climate experts.

Indeed, upon reading the report, it appears that the Observatory primarily answers a question related to the territorial presence of insurers. Yet the question increasingly emerging in public debate is often different: are certain properties gradually becoming difficult, or even impossible, to insure under economically acceptable conditions? This distinction is essential because it separates the existence of an insurance offering from its effective accessibility.

2.       A broader definition of insurability than what is actually measured

The report offers a particularly interesting definition of insurability. According to CCR, it rests on four essential conditions: the existence of an identifiable and uncertain hazard, the presence of policyholders capable of taking out insurance, the existence of an effective offering of coverage, and the implementation of prevention actions aimed at enhancing the system's sustainability.

This definition is fully aligned with economic and insurance literature, which views insurability as the meeting point between an offer of coverage, solvent demand, and a level of risk compatible with pooling mechanisms. It explicitly recognizes that insurability depends not only on the existence of insurers, but also on the financial capacity of policyholders to access this coverage, as well as on prevention mechanisms that help control the future progression of risks. Yet, when examining the methodology adopted in this first edition, it becomes clear that the analysis focuses almost exclusively on one of these dimensions: the territorial presence of insurers.

The report specifies that the main indicators used are the number of insurers present in a given area and a market concentration index to measure the distribution of activity among these players. The Observatory therefore does not directly measure insurability in the broad sense of the term. Above all, it analyzes changes in the insurance supply available within a territory. This distinction is not trivial. A territory can maintain a relatively diversified insurance offering while experiencing a gradual deterioration in access conditions. Rising premiums, increased deductibles, coverage exclusions, or underwriting refusals targeting specific, highly exposed properties may constitute the first signs of growing stress, even as several insurers continue to operate there.

3.       What the Observatory actually measures

The report repeatedly states that its objective is to identify territories at risk of seeing insurer retrenchment and to monitor changes in market structure in areas exposed to natural hazards.

This focus determines the entire methodology adopted.

The central variable analyzed is the territorial presence of insurance companies. The authors seek to identify municipalities or areas where the number of players appears abnormally low or where market concentration becomes particularly high. The maps produced by the Observatory must therefore be interpreted as maps of insurance presence rather than maps of insurability in the economic sense of the term. The report itself highlights this, noting that the national mapping aims to pinpoint territories where "the number of active insurers or the concentration of insurers is deemed abnormal." In other words, the question addressed is essentially this: is there still a sufficiently diversified insurance offering in areas exposed to natural hazards?

This question is entirely legitimate from a market surveillance perspective. However, it differs from the one currently concerning many property owners, businesses, or local governments: do exposed properties remain insurable under economically sustainable conditions? This difference in perspective largely explains the apparent gap between the report's relatively reassuring conclusions and the concerns voiced for several years by many industry stakeholders.

4.       A methodology that explicitly excludes several essential dimensions of insurability

One of the most significant limitations of the report is acknowledged by its authors. CCR explains that, due to competition law considerations, the study includes neither an analysis of policy pricing nor of the Cat Nat (natural disaster) surcharge. This methodological limitation is crucial, as price movements often serve as the first indicator of deteriorating insurability. In most markets facing worsening climate risks, uninsurability does not appear as an abrupt, across-the-board withdrawal of insurers. It generally manifests through a gradual increase in premiums, higher deductibles, coverage restrictions, or stricter risk selection.

Yet none of these phenomena are monitored by the Observatory.

Nor does the report track application refusals, post-claim cancellations, non-renewals, compensation caps, specific exclusions, or the number of properties that are actually uninsured. The findings thus allow us to conclude that insurance coverage remains available in the territory. However, they do not allow us to evaluate the actual conditions of access to that coverage. This nuance represents perhaps the primary takeaway from any critical reading of the report.

5.       Conclusion: from observing insurance supply to assessing the sustainability of risk transfer

Ultimately, this analysis shows that the Insurability Observatory's first report provides a useful contribution to the public debate. For the first time in France, data covering a significant share of the home insurance market has been leveraged to analyze the territorial distribution of insurance supply in areas exposed to natural hazards. In this regard, the report offers valuable insights into market dynamics and helps detect potential phenomena of concentration or withdrawal by insurance players.

The presented results confirm the ongoing availability of insurance coverage in the studied territories. However, they do not allow us to determine whether this coverage remains accessible under conditions compatible with the economic value of the properties, their use, or their financing.

International experience demonstrates that insurability challenges rarely appear as a sudden departure of insurers. More often, they manifest through incremental increases in premiums, deductibles, coverage exclusions, or underwriting refusals. These developments typically serve as early indicators of growing tension between advancing climate risk and the market's capacity to absorb it.

Future editions of the Observatory could thus build on this initial approach by incorporating indicators more directly tied to the actual terms of insurance access. Tracking trends in premiums, deductibles, coverage exclusions, application denials, post-claim cancellations, and the rate of non-insurance would provide a more nuanced understanding of ongoing market shifts. Similarly, conducting analyses at the asset level rather than solely at the municipal level would offer a more accurate depiction of conditions on the ground, as two properties located within the same territory can exhibit radically different risk profiles and insurance trajectories.

As climate change alters the frequency and intensity of natural hazards, the challenge is no longer merely to identify areas where an insurance offering remains present. It is also to understand where insurance stress is likely to emerge, at what pace, and in what forms. A genuinely forward-looking approach would require combining insurance data, climate projections, asset characteristics, vulnerability levels, and adaptation efforts to anticipate future areas of fragility.

At its core, the pivotal issue is not just insurability, but the sustainability of climate risk transfer. As long as risks can be pooled and transferred to the insurance market under economically viable terms for both policyholders and insurers, the system retains its protective capacity. When this transfer becomes progressively more expensive, restrictive, or selective, the earliest signs of uninsurability emerge long before any visible disappearance of coverage.

Ultimately, the ambition of an insurability observatory should perhaps not be confined to tracking the physical presence of insurers in a territory, but rather to evaluating the sustainability of climate risk transfer among policyholders, insurers, and the community. In an era of intensifying natural hazards, the central question is less whether coverage exists, and more whether it can remain accessible, effective, and economically viable over the long term. It is likely only under this condition that the Observatory will be able to fully address the challenges posed by climate change.