Volume 29 (2006) / Issue 1
There are three types of public intervention to make sure that property damage caused by natural disasters is compensated: ad hoc solutions, payments through compensation funds, and a compulsory catastrophe extension of property insurance contracts. The best known example of the latter approach is the French law, which imposes a mandatory catastrophe insurance on all owners of property (tying clause), fixes the premiums and arranges re-insurance by the State. This French scheme creates distortions that competition law is willing to prevent and it is also at odds with the principles of the group exemption for the insurance industry. However, both efficiency reasons and grounds of national solidarity may provide powerful arguments to justify a compulsory catastrophe extension of voluntarily subscribed property insurance contracts. The concerns about competitive distortions are legitimate but should be discussed in a broader social welfare context. Since pure forms of public intervention (ad hoc solutions and compensation funds) provide insufficient incentives for risk prevention and mitigation of losses, forms of public-private cooperation that avoid the latter efficiencies may generate benefits outweighing the costs of anti-competitive distortions.
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