The Federation of European Risk Management Associations has told the European Commission that any new catastrophe insurance solutions should be market-based and not involve a compulsory insurance scheme.

Responding to a green paper on natural and man-made disasters from the European Commission, Jorge Luzzi, president of Brussels-based FERMA, said, “Generally speaking, as insurance-buying and risk management professionals, our members do not see any reason for a mandatory framework to improve the insurance market capacities.”

FERMA's response emphasized suitable risk pricing to promote a risk management culture and said that where the private market is mature and working well, a compulsory arrangement is not desirable and in fact would create a moral hazard because, with rates divorced from exposures, it would not encourage risk mitigation efforts.

FERMA said it's necessary that insurers and risk managers have equal access to natural catastrophe data collected and processed by E.U. entities before any move is made toward a mandatory financial security arrangement.

Mr. Luzzi's letter, which accompanied FERMA's position paper on the green paper, also said that while FERMA agrees it's important to consider how to improve catastrophe insurance market capacity, the tools needed are already available in the existing market and E.U. member states could be encouraged to improve their own catastrophe insurance markets through a collection of best practices at the E.U. level.

FERMA's response also says that long-term disaster contracts are “an interesting option” that would require further study and that a parametric solution for E.U.-wide catastrophe risk would be potentially uncertain and expensive because of the data that would need to be collected and analyzed.

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FERMA also acknowledged the need for public risk management and said E.U. member states have the responsibility to develop public policies to reduce the impact of disasters through current and planned public infrastructure.

The European Commission green paper was intended to launch a discussion between stakeholders, raise awareness and assess whether E.U. intervention is needed to improve the market for disaster insurance in Europe.