As some countries either introduce or consider introducing mandatory natural catastrophe insurance (e.g., Italy this year), France is ahead of the curve.
This is because France already has a specific compensation scheme in place for coverage of property against natural disasters, and has had one since 1982. The importance of the scheme is clear, as it is based on a statement in the preamble to the 1946 Constitution that French citizens are united and equal in bearing the burden of natural disasters. It is often referred to as the CATNAT or NATCAT regime.
What is the scope?
Unlike in some countries where mandatory natural catastrophe insurance may be limited to insurance of buildings, various types of insurance are within the remit of the CATNAT regime in France.
First and foremost, damage to property coverage (both fire damage and any other damage to property) triggers the insured’s entitlement to cover against the effects of natural disasters. This is extended to damage to motor vehicles and, separately, also operating losses caused by damage to property.
It is worth highlighting that insurers providing these types of insurance must include a clause in their contracts outlining their coverage of natural disasters. Any provision to the contrary is invalid.
Practical application of the CATNAT regime
Insurers collect an additional premium (the so-called CATNAT premium) representing the coverage of natural disasters at a rate set in law and based on the type of insurance, subject to exemptions. Following a change in January 2025 due to increased costs caused by climate change, the premium rate for property damage is now 20%, whilst there are rates of 9% and 0.75% in the case of motor coverage.
Insurers have a choice on what to do with this premium amount. They can choose to retain it themselves, in which case they are responsible for compensating policyholders for damage caused by natural disasters. Alternatively, they may opt to utilise the private reinsurance market. Finally, and most significantly, there is also the option for insurers to reinsure the premium with the state-backed reinsurance body, Caisse Centrale de Réassurance (CCR).
CCR only provides cover in the event of genuine natural disasters, as defined by their exceptional intensity. Floods and earthquakes typically satisfy this, whereas storms and hail do not as the insurance market can cover them as normal. Where CCR does provide compensation, it offers unlimited reinsurance coverage.
IPT implications
The CATNAT premium is subject to premium tax treatment, meaning that it also attracts IPT. Additionally, an additional insurer-borne levy due on property risks is calculated as 12% of the CATNAT premium. These are the contributions to the Major Risk Prevention Fund (or Fonds Barnier), which are included on the IPT return.
Sovos is well placed to assist both in identifying whether a particular policy is within the scope of the CATNAT regime and with the ultimate declaration and settlement of the taxes due on the CATNAT premium.
