Insurance and natural disasters: a challenge on our doorstep
The recent tragedy in Blatten has rekindled a thorny issue: the growing difficulty for insurance companies to cover companies and individuals against the risks associated with natural disasters, which are becoming increasingly frequent as a result of global warming.
A deafening noise. Debris tumbling down the mountain. A cloud of dust reminiscent of Pompeii. A village has been wiped off the map before our very eyes. A human tragedy that nonetheless raises fundamental questions about our insurance system.
In Blatten, as throughout the canton of Valais, insurance against fire and natural disasters is not provided by the state, and is therefore optional. Have some households forgotten the importance of insurance and lost everything? According to the Association Suisse d’Assurances (ASA ), most buildings and their contents (household inventory and movables) are probably insured, although no figures are given (Source: HZ Insurance weekly newsletter).
Other questions raised by this disaster: will insurance companies be lenient in the face of the rules in force? In principle, they cover the cost of reconstruction within 24 months of the disaster. But who knows when the area will be safe enough to start rebuilding? Once again, according to the ASA, it seems that insurance companies will be flexible when it comes to applying their general conditions.
Today, however, it’s time to take another look at how natural damage insurance works, and its limitations in the face of increasing climatic risks.
A non-uniform Swiss system
In Switzerland, 19 cantons have a cantonal building insurance institution (ECAB), which insures all buildings against fire and natural disasters (storms, hail, floods, etc.). The system is public and operates on the principle of a cantonal monopoly.
However, the canton of Valais has no such facility. The risk there was too high to implement such a system, not least because of the terrain and runoff.
Six other cantons are in the same situation: Geneva, Uri, Schwyz, Ticino, Appenzell Inner-Rhodes and Obwalden. In these 7 cantons, insurance against fire and natural hazards is provided not by the state, but by private insurers. Insurance is optional in these cantons, but strongly recommended.
For example, in the case of natural disasters insured by private companies (in cantons without an ECAB):
- FINMA monitors insurers’ compliance with the rules governing compulsory insurance against natural hazards (in accordance with art. 171 of the Insurance Supervision Act).
- These rules impose uniform pricing: all insurers must apply the same premiums and conditions for this coverage (storms, floods, landslides, etc.).
- The aim is to avoid competition in this type of insurance, since it is a national solidarity risk, with catastrophes that can affect many people at the same time.
A commendable principle of double solidarity…
But how exactly do these private insurances work?
Private insurance against natural disasters in Switzerland is based on a system that is unique in the world, governed by law and founded on the principle of double solidarity.
On the one hand, it’s a question of solidarity between policyholders: every policyholder of a private insurer pays the same premium, set by FINMA, for basic cover, whether or not they live in a high-risk area. This uniform premium makes it possible to offer full insurance coverage, even in regions that are more exposed than others to natural hazards.
Solidarity also exists between insurers: in the event of a claim, the Natural Damage Pool ensures that losses are offset between companies. Companies with a lower-than-average claims burden in relation to their market share come to the rescue of companies with a larger market share in a given region, so that the latter are not penalized. In addition, the Natural Hazards Pool organizes reinsurance worth billions on behalf of its members, and maintains a comprehensive database on natural hazards. (Source: HZ Insurance weekly newsletter)
…but impacted by capitalism
The principle of insurance is therefore laudable, but capitalism has an impact, because the insurer is looking for the best possible profitability.
Faced with an increasing number of natural disasters, insurers have become overcautious. At Loyco, we are deploying more and more resources to encourage the insurance market to get involved and assume the risks of our corporate customers who are exposed to major perils.
According to the Handelzeitung, “of the nine insured natural hazards (floods, storms, hail, avalanches, snow pressure, rockfalls, rockfalls and landslides), floods are responsible for the lion’s share of damage every year. The year 2025 will surely be an exception, as the rockslide in Blatten, Valais, is expected to exceed the average annual damage figure”.(Handelzeitung).
This phenomenon of “insurance resignation” can also be observed in France, as evidenced by the cry of protest from a mayor in the Alpes-Maritimes who “banned” natural disasters in response to insurers refusing to cover buildings on his territory, following the passage of storm Alex in 2020. In the United States too, coastal villas, some of which are already being swallowed up by the ocean, are no longer insured, as are some homes exposed to the country’s latest major fires.
A business under threat
Recently interviewed in an RTS article on the subject, Martin Steinauer, head of claims at Mobilière for the French-speaking part of Switzerland, said: “We’re expecting increases in terms of frequency and intensity. This can be seen in our statistics, our key figures and in the field: not only hail, but also everything to do with overflowing rivers and floods”, confirming that insurance companies are keeping a close eye on these developments.
Swiss Re, the world’s number two reinsurer, was one of the first to react to the increase in natural disasters , and very early on integrated analysis of the risks associated with global warming into its strategy. Axa, for example, is also committed to developing solutions to reduce climate risks. These positions and commitments contrast with the parallel “resignation” of certain insurance companies.
In its article, RTS asked the question head-on: will certain regions become uninsurable in future? “Samuel Gétaz, Axa’s claims representative for French-speaking Switzerland, replied: “There is no question today of ceasing to cover certain regions in Switzerland. “Faced with these constraints, companies are focusing on prevention and risk pooling,” concludes the article.
The insurance industry is aware of this: if nothing changes, it will lose its field of activity if it can no longer insure risks. And if they can no longer insure individuals or businesses, the economic and social fabric of the whole of Switzerland will be affected.
One thing is certain: in addition to the fight against global warming and sound risk management, alternative insurance models – such as co-insurance, insurance pools or state solutions – must be explored if we are to ensure our country’s economic and social well-being.
To find out more
- No precise estimate yet of the extent of the damage in Blatten | HZ Insurance
- These regions are particularly hard hit by bad weather | HZ Insurance
- Banque cantonale du Valais: a million for Blatten and a helping hand for disaster-stricken homeowners
- France: Faced with soaring insurance premiums, a mayor “bans” natural disasters
- Swiss Re, or sustainability as a business model – Le Temps
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