Evolving Nat Cat landscape creates challenges for multinational insurance

Images of wildfires consuming parts of Los Angeles earlier this year were yet another reminder of the growing risks posed by extreme climate events. Last year was the warmest on record – a record that is expected to be broken in the next five years, according to the World Meteorological Organization – while devastating storms and flash floods impacted countries as diverse as Spain, Dubai, Brazil, Canada and the US.

The impact of extreme events continues to rise: The global cost of natural disasters in 2024 was $318bn, of which just $137bn was insured, according to Swiss Re. In Europe, only one-fifth of natural catastrophe losses since 1981 were insured – a share that is declining, according to EIOPA. Extreme weather events and other related environmental risks dominate the top risks over the next decade as identified in the latest Global Risks Report from the World Economic Forum, which is supported by Zurich Insurance.

Regulatory response

Extreme weather events cause damage, business interruption and supply chain disruption, but they are also triggering wider debates around resilience. As the uptake and affordability of insurance comes into sharper focus, state involvement in local property catastrophe insurance markets is increasing, including the creation of state-backed pools and a variety of insurance schemes and regulatory requirements.

National solutions to natural catastrophe perils are not new, but the number of catastrophe reinsurance pools and insurance schemes continues to grow with the increase in extreme weather events. In the wake of storms and flash floods in 2023, Italy implemented a new compulsory insurance cover and voluntary reinsurance scheme for businesses, effective April 1, 2025, for property damage caused by the perils of earthquake, flood and landslide. Commencing January 1, 2025, Greece implemented a new law requiring companies with annual turnovers exceeding €500,000 to purchase property damage cover against wildfires, floods and earthquakes.

With natural catastrophe losses on the rise, discussions are underway for an EU-wide insurance solution for natural perils. The European Central Bank and the regulatory body EIOPA recently proposed an EU public-private reinsurance natural catastrophe scheme funded by premiums from (re)insurers or national insurance schemes. According to EIOPA, there are at least 12 national natural catastrophe insurance schemes in Europe, and reliance on such mechanisms is growing.

Local vs global strategy

While national insurance solutions can play an important role in building societal and business resilience, they usually do not cater specifically to the needs of corporates, as they are typically aimed at protecting homeowners and small businesses. In addition, no two schemes are the same, as each national solution is unique to the local market conditions and perils. In fact, most national natural catastrophe solutions bring additional complexity for multinational companies and their insurance arrangements.

As a result, there are often unintended consequences from the imposition of national (re)insurance schemes and associated regulations. National requirements will affect what a multinational can and cannot do with regards to structuring their insurance programs, potentially adding costs and giving rise to technical and compliance challenges.

Impact on multinational insurance

Multinational companies will need to stay on top of changes to local requirements for natural catastrophe insurance and reinsurance. It is important that they understand how local schemes work, the coverage they may or may not provide, their implications for program structure, compliance, captives and reinsurance arrangements.

Schemes may require captives or insurers to pay premiums to local reinsurance pools - which may not provide cover on the same terms or pricing as the private market. France, for example, increased the surcharge rate for its natural catastrophe pool to 20% from 12% of premiums as of January this year. Companies may also be required to purchase compulsory or mandatory insurance coverages, subject to mandatory limits or deductibles.

Insureds and/or insurers may also be subject to administrative, accounting or reporting requirements. Under recently revised reporting requirements in Norway, members of the Norwegian Natural Perils Pool are required to report insurance sums, premiums and admin costs from 2025. This is in addition to the existing requirement to report natural catastrophe claims to the pool. Membership to the Norwegian Natural Perils Pool is also required for companies writing property damage covers (e.g. by means of freedom of services provisions within the European Economic Area) for insureds located in Norway and does not just apply to local insurers.

Non-admitted challenge

This brings us to one particularly challenging area which is providing (ground-up) coverage on a non-admitted basis or through freedom of services (FoS) agreements. Where permissible, these agreements allow insurers to offer coverage via a Global (Master) or European (FoS) policy rather than issuing local admitted policies, which may not be cost-effective for low-value exposures.

However, when conducting business in the European Economic Area under the Freedom to Provide Services provisions, insurers (including direct writing captives) must meet all mandatory requirements in the member states where they offer coverage. In some cases, non-admitted insurance may be permitted, but it can conflict with local compulsory insurance requirements. This conflict may prevent the local insured from confirming the legally required coverage to local authorities or third parties, such as banks or lenders, or local admitted policies may be required.

Large multinational companies are usually not exempt from the compulsory insurance requirements, which may be ambiguous and difficult to interpret and apply to multinational programs that often provide a more comprehensive cover, for example also covering business interruption or other natural catastrophic perils, aligned with the insured’s needs and the capacities available in the market. To stay compliant and resilient, multinational companies and risk managers may need to adapt their insurance strategies, and work with their insurers and brokers on solutions including the reinsurance market that may have to follow the fortunes on the mandatory coverage when the risk is not ceded to an external pool or scheme, but this may restrict the availability of capacity.

Where non-admitted solutions come up against complex local requirements, companies will need an insurer capable of providing a compliant and effective solution to align with all the requirements: Issuing local policies may not always be the most cost-effective solution, but may reduce the challenges and administrative burden of having to deal with specific reporting provisions which could result in non-compliance or even a potential gap in cover for the insured when risks are not reported to the pool or governmental scheme, or when strict premium payment terms for the mandatory scheme are not being adhered to.

Double down on risk prevention

With the increasing frequency and severity of extreme weather events, and with increased regulatory requirements, the importance of loss prevention and risk mitigation has never been as important for multinational companies.

Insurance is intended as a last line of defence, and most national catastrophe pools do not address the needs of multinational companies. Crucially, national schemes and pools rarely cover business interruption or supply disruption resulting from natural disasters, perhaps the biggest exposure for most large corporates. Other perils, such as heat waves or drought, are also not typically covered beyond agriculture.

Adapt, invest and engage

Multinational companies are increasingly taking a more focussed and sophisticated approach to natural catastrophe risk, supported by data and analytics. Many organisations also now take a more forward-thinking approach, exploring potential future risks across various climate scenarios, quantifying them and then weighing up risk mitigation and strategic options. For example, the Zurich Multinational team is working together with Zurich Resilience Solutions to help multinational customers identify climate-related risks and make informed investment decisions around adaptation and loss prevention.

An increased focus on managing and preventing natural catastrophe risks is also key to the sustainability of insurance cover. Multinational companies cannot rely on government pools and insurance schemes for protection, and will need to reduce risk. And the more multinational companies invest, the more they will find insurers able to offer solutions.

Originally published in Commercial Risk on July 1, 2025.