NATURAL HAZARD SCHEMES

Overview

Whether an ecosystem's risk reduction can be turned into a payment depends on how natural hazard risk is already carried in the country concerned. The natural hazard schemes material provides an overview of European natural hazard insurance systems, country by country, so that the space available for a nature-based arrangement can be identified before one is proposed.

The systems differ in ways that matter. In some countries natural hazard cover is a market product, in others it is a public scheme, in others it is a compulsory extension of a fire policy, and in others the state acts as the reinsurer of last resort. Each of these arrangements creates a different set of possible counterparties and a different set of rules about what may be charged for.

What the overview covers

For each country examined, the material records who is covered and on what basis, whether participation is voluntary or compulsory, how premiums are set and whether they may be differentiated by risk, the role of the state in reinsurance or in providing compensation after an event, and the supervisory framework within which the market operates.

It also records the incentives the arrangement creates. A system in which premiums are uniform across a national territory gives an insurer no mechanism to reward a reduction in local risk, and therefore gives a landowner no route to be paid for providing it. A system in which premiums are differentiated, or in which a public scheme can account for avoided loss, provides such a route. Identifying which of these applies is the first practical step in designing a natural assurance scheme for a particular place.

The comparisons were compiled from national sources and from interviews with insurers and public authorities in the countries concerned, and they are presented in a form intended for use rather than for reference: the reader should be able to establish, for their own country, who the relevant actors are and what instrument could carry the payment.

How to use it

Read together with the insurance value survey and the natural capital market integration portrait, this material establishes the institutional and market setting within which a Nature Based Solution has to be financed. Read together with the demonstration cases, it shows how that setting affected what was actually proposed at each site.