Collaboration, collaboration: How public-private partnerships could make Europe more resilient

During 2016, economic losses triggered by natural disasters in Europe amounted to around USD 23 bn, of which only a third were covered by insurance. Globally, over the last 25 to 30 years, the growth rate of economic losses has outpaced insurance losses. Swiss Re believes this to be indicative of a long-term trend. Moreover, the burden both for the public sector and individuals is becoming increasingly onerous. In Europe alone during 2016, roughly 317,000 people were affected by Nat Cat events and 100, 000 buildings damaged or destroyed. Different countries have inevitably taken different paths to narrowing the protection gap. The one common denominator, however, is that collaboration in the form of public-private partnerships make a lot of sense.

In the UK, for example, there is a flood reinsurance scheme, known as Flood Re, that helps UK homeowners in need of cover in flood risk areas. It is a public-private partnership between the government and the country’s insurers. Its goal is to increase the availability and affordability of flood cover, thereby strengthening homeowners’ financial resilience.

Flood Re solves the affordability issue by enabling insurers to reinsure their flood risks. The insurers pay an annual levy of GBP 180m to Flood Re that funds the organisation and enables it to charge premiums to insurers below the risk-reflected price. In turn, they are able to pass on the price benefit to homeowners.

The Nat Cat scheme operating in France is a public-private partnership between the country’s insurers and Caisse Centrale de Reassurance (CCR), a 100% state-owned reinsurer. The protection offered covers a wide range of natural hazards. A flat rate premium is applied to all insureds regardless of the severity of the Nat Cat risk to which they are exposed. The system is largely voluntary and the service CCR provides is very comprehensive, ranging from risk modelling to prevention. Protection is accessible and affordable, and the CCR is not a financial burden on the state.

At a recent industry conference hosted by Swiss Re, European re/insurance executives, representatives of insurance industry associations and stakeholders from the public sector, examined public-private partnership models already in operation and their significance for government policies.

The conference demonstrated that insurance and mitigation/prevention go hand in hand. However, because it is impossible to rule out all eventualities, there will always be a residual element of risk, which is where insurance comes in. The solution is often a trade-off between the principle of solidarity and affordability for all and the principle of risk-based pricing and incentives for prevention.

Supporting financial resilience

Re/insurance supports financial resilience by acting as a shock absorber and promoting growth through its core businesses. This is particularly important in a challenging and volatile macro-economic environment.

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