Drought, floods: French communes find insurance contracts cancelled

Increased numbers of authorities in France are finding their insurance contracts being cancelled, voided, or rising significantly in price due to the growing number of climate change-related claims.

One example is the municipality of Vitry-en-Artois (Pas-de-Calais, Hauts-de-France), which received a letter terminating its liability and car fleet insurance policy over the summer on the grounds of “increased climate risk”. 

As of December 31, the municipality will no longer be covered, it said to BFMTV.

Climate change claims

The phenomenon is largely due to an increase in weather-related claims nationwide, including in the aftermath of severe storms or intense flooding. Other issues causing insurers to flee include a rise in urban riots.

In its annual report, the national insurance group France Assureurs federation said that climate-related claims cost insurers €6.5 billion in 2023, making it the third-most expensive year for the sector since 1999 (€16.6 billion in 1999 due to Storms Lothar and Martin) and 2022 (€10.6 billion due to drought and hail).

Local authority insurance company SMACL said that the cost of claims “increased fourfold between 2021 and 2022, reaching more than €100 million in 2022, an increase of 300%”. It said that weather-related claims were a major reason for this, amounting to almost €50 million in 2023.

Read also: 300 French communes declared disaster zones for floods and drought 
Read also: France’s ‘catastrophe naturelle’ insurance system: how to claim 

Fears of a ‘two-tier’ France

An online survey by the French Senate found that 20% of local authorities had had their policies terminated by the insurer, “with notice periods that were sometimes incompatible with the launch of a new call for tenders” (meaning that they were unable to effectively find a new insurer at such short notice).

The report also found that 24% of local authorities had not received any reply to their call for tenders for new contracts. Of those that did receive a reply, the premiums and excesses offered were much higher than for the previous contract, they said.

The report also found:

• 48% of authorities said their relationship with their insurer had deteriorated over the last 10 years

• 24% said that their relationship had deteriorated significantly 

• 60% said they had at least one important issue in their relationship with their insurer

• 29% had seen their insurance contract amended since January 1, 2023 (and of these, 94% had had an increase in their premium, and 27% an increase in the excess).

Some local authorities now fear that this could create a “two tier France”, with “one group able to take out insurance and the other not,” said the mayor of Vesoul (Haute-Saône, Bourgogne-Franche-Comté) Alain Chrétien, to BFMTV.

‘Without insurance, society is undermined’

Mr Chrétien has also written a report about the issue, with former chairman of French insurance group Groupama, Jean-Yves Dagès. The two say that local mayors are increasingly “torn between shock, anger and incomprehension” at the situation.

This is especially true because local authorities are not just “like other customers”, he said. They provide essential public services, such as crèches, schools, gyms, and social centres.

“‘Without insurance, a whole part of our society is undermined,” Mr Chrétien said.

Trend set to increase and continue

The issue is showing few signs of slowing down, said SMACL. “In 2024, the trend will remain higher than in average years,” it concluded.

The Caisse Centrale de Réassurance (CCR) has also warned that the phenomenon is only set to increase.

It said that damage caused by claims due to climate disasters (floods, drought, marine submersion, cyclones, earthquakes) could increase by 40% by 2050, and “by 60% if we take into account the increase in the overall value of insured assets”.

Lack of competition

The trend can also be partly explained by a lack of competition in the local authority insurance market. 

Today, there are only two main companies: SMACL, which is a subsidiary of Maif; and Groupama. In their report, Mr Chrétien and Mr Dagès denounce this situation as an “oligopoly”. 

The issue also dates back to 2010, they said, when a “price war” led to the “underpricing of policies”. This prompted many insurers to leave the market, and prices rebounded in 2023, with rates that are now too high for local authorities.

Prevention first

Mr Chrétien and Mr Dagès have called for a new approach, and are working to appeal to insurance companies by changing the process for awarding public contracts, by making them more flexible. 

It also comes after the CCR officially announced the creation of a new observatory designed to identify areas of France that are struggling to find insurance due to increased climate change risks, and begin an action plan to help.

Read also: Official maps to show where homes are most at risk of climate damage in France 

SMACL has also said that it is focusing on preventative measures, as “several studies show that one euro invested in preventive measures by local authorities can reduce the cost of claims by at least seven euros”, it said. 

Preventative measures include investing in ways to reduce the impact of climate change disasters, including flood prevention, reducing the artificialisation of ground, and adapting land to changing weather trends.