Reinventing climate risk insurance

Original text here from Patrice Bernard (LinkedIn)

It was long overdue. As both insurers and climate experts continue to sound the alarm over the growing impossibility of covering certain risks under traditional models, France’s High Commission for Strategy and Foresight has finally released a report proposing ways to respond to the emerging crisis.

The problem is now undeniable: the rising frequency of extreme weather events—which are increasingly becoming the norm—along with rising sea levels and the resulting floods, droughts, hurricanes, avalanches, and structural collapses are driving insurance payouts to unsustainable levels. The financial strain is threatening the very foundation of insurance: risk mutualization.

France does already have a national natural disaster insurance scheme, mandatory in all home and auto policies, designed to ensure equitable coverage. But it’s showing its limits—with certain risks like coastal erosion still excluded, growing financial imbalances, lingering legal gray zones, and persistent regional inequalities, especially in overseas territories.

The list of viable solutions—or more realistically, stopgaps—is short. On one hand, prevention must take a far more central role in both public and private responses to climate change. On the other, the cost of damages will inevitably rise, raising critical questions about how to equitably distribute that financial burden—across high- and low-risk zones, between owners and renters, and depending on one’s financial vulnerability.

To address these pressures, the report’s authors outline three escalating scenarios, which could be implemented gradually based on how the climate threat evolves. Each scenario hinges on differing levels of state involvement and risk sharing, echoing recent calls from insurers who warn they’ll soon be unable to meet demand on their own.

1. Minimal State Involvement: The government imposes limited coverage obligations on insurers for select climate risks, while stepping in as a reinsurer for those same risks.
2. Expanded Role and Housing Adaptation: The state assumes a broader role, covering droughts directly and funding adaptation measures—such as retrofitting homes or offering subsidies for relocating from high-risk areas.
3. A Fully Public, Universal System: A comprehensive state-run program covering both damage and prevention, funded through contributions (the structure of which remains undefined). This model envisions a unified national insurance system, with the state entirely responsible for climate-related losses.

While the report is a welcome step, its most ambitious scenario lacks budgetary projections, making it difficult to assess the viability of a fully public model. A first estimate of the true cost of climate change would be essential to kick-start serious debate.

The report now sits on the table. The question remains: Will any government have the political courage to act boldly and allocate the necessary resources—or will citizens be left to face an inevitable collapse of the insurance system alone?