this post was written with Laurence Barry, initially in French
At a time when the frequency and intensity of natural disasters are increasing as a result of global warming, the issue of disaster insurance is becoming crucial to preserving economic and social resilience in most countries. However, when we look at the various existing systems, we see that the state is usually involved in one way or another in the system that has been put in place. Far from being limited to a commercial transaction between insurer and insured, insurance against natural risks takes the form of a common good—an “insurance commons”—based on mutualization, solidarity, and collective governance. To shed light on this issue and propose another framework for thinking about natural disaster insurance, we will draw on seminal work on hybrid property regimes and commons (Samuelson, 1954; Arrow, 1963; Ostrom, 1990; Ostrom & Ostrom, 1999), as well as economic analyses of insurance (Coase, 1960; Buchanan, 1965) and systemic risk management (Markowitz, 1952; Arrow & Lind, 1970). This theoretical positioning makes it possible to move beyond the traditional dichotomy between the public and private sectors, which has been further exacerbated by recent debates, to show how catastrophe insurance is in fact organized as a polycentric institution, where a multiplicity of actors—states, insurers, reinsurers, local authorities, and policyholders—have a role to play. A virtuous system is one in which all actors cooperate and regulate each other to ensure universal and effective protection despite climatic hazards.
Catastrophe insurance schemes: a public-private continuum
The natural disaster insurance schemes implemented in several countries illustrate a public-private continuum (Ostrom & Ostrom, 1999; Ostrom, 2010) that is difficult to describe using “orthodox” economic tools. In France, since 1982, the CatNat scheme (Law of July 13) has been based on the obligation for all insurers to include natural disaster coverage in their home and contents insurance policies, backed by a “public guarantee” provided by the Caisse Centrale de Réassurance (CCR). The state intervenes as a last resort to absorb losses above a certain threshold, thus guaranteeing the overall solvency of the system. This risk sharing is based on two complementary pillars: mandatory national mutualization, which smooths out localized shocks and makes premiums affordable, and public reinsurance, which strengthens financial capacity in the event of major disasters (hurricanes, massive floods).
In the United Kingdom, the creation of Flood Re in 2016 was motivated by rising flood insurance costs, which threatened access for households living in at-risk areas. Flood Re is a public-private pool where insurers transfer a portion of their premiums to a central fund, which provides reinsurance for moderately priced contracts. Flood Re applies a sliding scale of premiums: premiums are capped according to income level to preserve accessibility, without taking into account the level of risk.
In the United States, the National Flood Insurance Program (NFIP) has been a fully public scheme since the 1960s, with premiums often underpriced to promote access for the most disadvantaged. Faced with growing deficits (due in particular to Hurricanes Katrina in 2005 and Sandy in 2012), reforms aim to introduce prices that are closer to the risk, while maintaining mechanisms of territorial solidarity. The challenge is to avoid two pitfalls: overpricing, which would exclude low-income populations, and underpricing, which fuels the vicious cycle of post-disaster public debt.
In insurance economics, the public-private partnership is presented as a response to two imperatives: on the one hand, ensuring affordability by limiting premium increases for exposed areas; on the other hand, maintaining the incentive for prevention and active risk management, which is characteristic of the private sector (Coase, 1960). This balance is delicate: massive underpricing can ultimately increase vulnerability by discouraging preventive measures, while purely actuarial pricing can exclude the most vulnerable (Stiglitz, 1989), as observed in the United States following successive repricing by the NFIP. However, it is possible to escape this paradox by rethinking disaster insurance not as a private good, subject to individual incentives via premiums, but as a toll good, for which prevention is no longer thought of as a bilateral relationship between an insurer and an insured party, but as everyone’s business.
Disaster insurance as a toll good: principles and virtues
According to Ostrom’s typology (1990), toll goods are distinguished by their easy excludability—coverage is provided to identified insured parties—and non-rivalry—the protection of one insured party does not directly affect that of others, provided that there is effective pooling. The contract specifies the risks covered and the beneficiaries, which prevents unauthorized use and allows for control of the scope. And the capacity for compensation is based on a financial pool where cumulative contributions offset losses. In the event of optimal mutualization, a major loss does not exhaust the resources available to other insured parties; the diversification effect makes the average cost bearable (Markowitz, 1952; Arrow & Lind, 1970).
Here, the greater the number of insured persons, the more the law of large numbers applies; the variance in claims decreases, improving the predictability of commitments and optimizing pricing (Buchanan, 1965). In addition, a well-calibrated insurance system limits emergency budgetary interventions by the state and accelerates post-disaster economic recovery. This stability benefits society as a whole, particularly less exposed areas, which indirectly benefit from a more stable macroeconomic environment (Arrow & Lind, 1970). Also, unlike a purely market-based approach, which can lead to market scarcity or even disappearance (due to excessive adverse selection and coverage restrictions), a hybrid model promotes inclusion, horizontal solidarity, and economic efficiency. Thinking of disaster insurance as a common good makes it possible to mobilize all stakeholders (beyond just insurers and insured parties) for its resilience.
Three textbook cases of insurance commons
To illustrate this point, we can consider three specific examples of “insurance commons.”
Mutual health insurance companies are historical and institutional commons Mutual insurance companies, particularly in France, are a classic example of an insurance organization inspired by the commons model. Created in the 19th century under the impetus of labor movements and mutual aid societies, they are based on the principles of solidarity, self-management, and equality among members. Policyholders are both beneficiaries and co-producers of the service. The principle of “one person, one vote” governs their governance, thus breaking with the shareholder logic. This mode of organization is based on transparent rules, the co-construction of guarantees, and a general interest rather than a profit-making objective (Ewald 1986). These mutual societies are part of a collective empowerment approach and can be analyzed as institutionalized commons, stabilized by law but also governed by their members. Their model shows how transparent rules and self-monitoring by members ensure the sustainability of the commons.
The CatNat scheme in France, built on imposed and accepted mutualization. The French natural disaster compensation scheme (CatNat) is a unique example of an insurance commons co-constructed between the state, insurers, and policyholders. Founded in 1982, it is based on the principle of national solidarity: a mandatory surcharge (12% on home insurance contracts, recently increased to 20%) feeds into a common fund intended to compensate victims recognized as having suffered a natural disaster. This system combines several aspects of the commons: a pooled resource, polycentric governance (government, insurers, public reinsurer CCR), and use governed by collectively agreed rules. The participation of all insured parties, regardless of their exposure to risk, allows for implicit redistribution between areas with low and high accident rates. However, most stakeholders agree on the need to strengthen prevention and the resilience of buildings (Langreney, Le Cozannet, and Merad 2023) in order to maintain the long-term viability of the system.
Community microinsurance in the Global South, based on social innovation. In many developing countries, faced with a lack of accessible insurance coverage, local communities have developed mutual microinsurance systems. These schemes are based on the voluntary pooling of resources to deal with specific risks (illness, drought, death). Managed collectively, often without professional intermediaries, they provide vulnerable populations with access to minimal protection. These systems fully embody the spirit of the commons: self-organization, participatory governance, and local rules adapted to real needs. Their effectiveness is based on trust, proximity, and detailed knowledge of the risks (Jarzabkowski et al. 2023). They show that insurance commons are not an abstract utopia, but a concrete reality, particularly in contexts where neither the market nor the state meets needs. Their success relies on a dense social fabric, where trust and knowledge of local risks limit moral hazard.
Polycentric governance and principles of common pool resource management
Vincent Ostrom (1999) defines polycentrism as the organization of complex systems by several interdependent decision-making centers. Viewed in this light, disaster insurance schemes reveal: at the local level, local authorities and prevention committees (PPR, PLU, EPTB); at the national level, regulators (ACPR, EIOPA), legislators, and public reinsurers; and at the international level, supranational bodies that set prudential standards (Solvency II), regional pools (Caribbean States), and private reinsurers that mutualize on a global scale. These levels interact through mechanisms of mutual learning (Ostrom, 2010) and coordination, where each center can adjust its rules without waiting for a single centralized decision.
The sustainable management of a commons is based on the eight principles identified by Elinor Ostrom (1990), which we will attempt to apply here to catastrophe insurance:
- Clear definition of boundaries: who is insured, what risk is covered?
- Rules adapted to local contexts: particularly with regard to prevention.
- Collective participation: involvement of policyholders and communities in governance and compliance with building regulations in risk areas.
- Monitoring: observatories for exposure (risk maps, SINP databases) and insurability.
- Graduated sanctions: penalties for non-compliance with prevention standards.
- Conflict resolution mechanisms: mediation between policyholders, insurers, and local and national authorities.
- Recognition of the right to organize: legal recognition of pools and joint associations.
- Polycentrism: establishment of multi-level coordination mechanisms.
According to Elinor Ostrom (1990), these principles promote robust governance that is capable of adapting to climate change and systemic shocks.
Prevention, incentives, and resilience building: everyone’s business
Several incentive mechanisms are possible: in the United States, there is the Community Rating System (FEMA), which offers premium reductions in areas where communities implement protective measures (expansion of green areas, dikes, etc.); in France, joint associations such as EPTBs (public territorial basin establishments) with coordinated financing of flood retention and prevention infrastructure (Godard, 2012) embody the collaboration of local authorities concerned by the same risk; Collaborative observatories in the form of data-sharing platforms (Langreney, Le Cozannet, Mérad, 2023), currently being developed in France, enable more effective self-monitoring by insurers.
Thus, the shift from an individualistic approach to a community-based approach strengthens territorial resilience and allows public policies to be tailored to local specificities.
Natural disaster insurance, viewed as a shared insurance pool, highlights the importance of a polycentric and participatory model to ensure universal protection against climate challenges. The lessons learned from hybrid goods and commons suggest a framework where mutualization, transparency, and multi-level coordination work together to preserve both economic efficiency and solidarity. But to make this vision a reality, four levers are essential (1) the widest possible access through affordable pricing (Coe & Meinzen-Dick, 2010), (2) observatories ensuring transparency for constant self-monitoring, (3) incentives for prevention based on collective participation, (4) polycentric coordination, guaranteeing regulatory flexibility and local adaptation. In this case, integrating the concept of commons into catastrophe insurance is a promising way to build sustainable and solidarity-based resilience in the face of increasing climate hazards.
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Arthur Charpentier (June 21, 2025). Collectively rethinking disasters. Freakonometrics. Retrieved July 19, 2025 from https://doi.org/10.58079/146eq