Integrated System for Protection against Natural and Seismic Disasters under the PTRR

Description

Objective:

To reduce Portugal’s protection gap in relation to natural and seismic disasters, ensure predictable financing for the recovery of significant property losses, reduce dependence on ad hoc public support, protect households and businesses, and distribute the costs of extreme events more transparently between policyholders, the State, the insurance sector and future generations.

Final Assessment of the Mesure:

This assessment is, however, conditional, since the operational, financial and regulatory design of the policy has not yet been sufficiently defined.

Policy Context and Analytical Approach

Portugal’s disaster protection model remains highly dependent on voluntary insurance, often linked to mortgage lending, and on public support decided after each extreme event. Storm Kristin made clear that a significant share of private and business losses may not be covered by insurance, requiring the subsequent mobilisation of credit lines, subsidies, moratoria and other public emergency instruments.

The policy under assessment seeks to change this logic. Instead of concentrating the response after the disaster, it aims to shift part of the financing towards an ex ante model of risk-sharing and pre-funding. Its rationale is based on the idea that a mandatory system, combined with a national fund and solidarity mechanisms, could increase coverage, reduce uncertainty in recovery and limit the transfer of costs to future taxpayers.

The evaluation uses as its counterfactual the continuation of the current model: voluntary insurance or insurance linked to credit, extraordinary public support after events, and emergency credit lines. In this scenario, coverage would remain uneven, with households without mortgages, SMEs and older buildings remaining particularly exposed, while the State would continue to act as financier of last resort. This scenario is therefore intergenerationally problematic, insofar as it maintains a high dependence on ex post public responses, potentially financed through public debt, future taxation or reduced public investment in other areas.

The analysis is organised around three time horizons: the short term, corresponding to 2026 and 2027; the medium term, from 2028 to 2034; and the long term, from 2034 onwards. This distinction is relevant because the financial effects of mandatory insurance may arise immediately, whereas the effects on resilience, prevention, fund solvency and intergenerational fairness will depend on the accumulation of reserves, the quality of governance and the link between insurance and effective reduction of physical exposure to risk.

This evaluation is limited by the fact that the policy is still mainly defined at strategic level, with key parameters on coverage, financing, reinsurance, claims management, public support and monitoring still to be clarified. For this reason, the analysis focuses on the potential of the measure and on the conditions required for it to be effective and intergenerationally fair.

The central problem that the policy seeks to address is Portugal’s high protection gap in relation to natural disasters and seismic risk. In this evaluation, the protection gap is understood as the difference between the total economic losses caused by an event and the losses compensated through insurance contracts.

The evidence used in the study points to a very high level of financial under-protection. The Nova SBE/ASF report estimates that, between 1980 and 2020, 96% of losses from natural disasters in Portugal were not protected by insurance, compared with 78% in the EU-27. For seismic risk, the residential protection gap is close to 90%, and may reach around 92% of dwellings unprotected in terms of structural coverage. The OECD reinforces this diagnosis, indicating that between 1980 and 2023, extreme weather and climate events in Portugal caused EUR 17.6 billion in economic losses and that, between 1980 and 2024, only around 3% of losses were insured, with accumulated losses exceeding EUR 1,500 per inhabitant.

This gap appears to result mainly from low uptake and limited effective coverage of disaster insurance, although supply-side constraints also exist. On the demand side, the document identifies low risk perception, income constraints, difficulty in understanding coverage, lack of trust and the expectation of public support after disasters as relevant barriers to insurance uptake. On the supply side, risks such as earthquakes, floods and severe fires can generate high and correlated losses, requiring capital, reinsurance and risk-sharing mechanisms to keep premiums affordable and coverage available.

This level of under-protection creates three main problems. First, households and businesses affected by extreme events are exposed to property losses that they may be unable to absorb. Second, the State is placed under political pressure to finance reconstruction, compensation and credit lines after each event, turning private losses into fiscal risk. Third, the absence of premiums and risk information reduces incentives for prevention, particularly in relation to construction, location, maintenance and adaptation of housing.

Impacts and Groups at Risk

The directly affected population includes homeowners, condominium owners, companies with physical infrastructure, insurers, reinsurers, intermediaries, banks and public administrations. The policy may also affect tenants, even if they are not policyholders, if part of the cost is passed on through rents or condominium charges.

The effects are likely to be unevenly distributed. Low-income households, pensioner homeowners, SMEs, owners without mortgages, older buildings and homes located in exposed areas may face greater difficulties in taking up or paying for insurance. By contrast, homeowners with mortgage credit or multi-risk insurance may mainly experience an extension of existing coverage. Territorially, the measure will be more relevant in areas exposed to natural and seismic risks, although the precise scope of coverage and premium design remain to be defined.

In terms of impacts, the policy may strengthen the financial resilience of households, businesses and the State by making post-event recovery more predictable. In housing, it may accelerate repair and reconstruction, provided that the insured capital is sufficient and claims are paid quickly. In income and employment, it may reduce liquidity shocks after disasters, although premiums may weigh in the short term on vulnerable households and SMEs. In health, the effects are indirect and uncertain, depending on the speed of recovery and the simplicity of the compensation process. In infrastructure, insurance and the fund may accelerate repairs, but they do not replace public emergency response, maintenance, climate adaptation and spatial planning.

In summary, the policy mainly improves financial resilience, not physical resilience. Its effectiveness will depend on the coordination between insurance coverage, the national fund, prevention, spatial planning, infrastructure resilience and clear rules for claims management.

Recommendations: Strengthening the Financial, Distributive and Operational Design of the Measure

The policy is still at the design stage. The recommendations should therefore focus on defining its legal, financial and operational conditions, so as to ensure that reducing the protection gap is not achieved at the cost of greater regressiveness, low trust or fiscal fragility.

1. Clearly define the scope of coverage: The law should specify covered risks, assets covered, deductibles, compensation limits, exclusions, minimum insured capital and the relationship with existing multi-risk insurance. Ambiguity would increase litigation and reduce trust in the policy.
2. Create an automatic and targeted social subsidy: Low-income households, older homeowners and households in older dwellings should receive partial or full support for the premium. Support should be transparent, simple and, wherever possible, automatic, using existing tax and social information.
3. Combine risk-based premiums with explicit solidarity: Premiums should signal risk in order to incentivise prevention, but they must not make coverage inaccessible. The solidarity component should be made transparent, through the public budget, mutualisation or vouchers.
4. Link insurance to risk mitigation: The policy should provide discounts, bonuses or preferential conditions for properties that adopt certified risk-reduction measures, such as seismic reinforcement, flood protection, improved drainage, fuel management or structural maintenance. For vulnerable properties, these incentives should be accompanied by grants, subsidised credit or technical support.
5. Define the financial architecture of the fund: The fund should have a clear layered structure, including retention by insurers, a national reserve, reinsurance, possible catastrophe bonds and a limited public backstop. Each layer should have defined triggers, limits and replenishment rules.
6. Establish claims rules and consumer protection: Catastrophic events require fast and predictable processes. The policy should provide for maximum payment deadlines, advance payments, standardised assessments, complaint mechanisms, independent audit and public information on settlement times.
7. Create a data and monitoring platform: ASF should publish aggregate indicators by risk, municipality and income segment, including coverage, premiums, insured capital, claims, reserves, reinsurance, subsidies and payment times. Without data, the policy will not be assessable or adjustable over time.
8. Ensure a gradual transition: The obligation should begin with new contracts, renewals of multi-risk insurance or mortgaged properties, before expanding universally. Phasing should avoid large-scale non-compliance, allow market adjustment and be accompanied by clear public communication.
9. Clarify the relationship with ex post public support: Public support after disasters should be complementary and targeted, not a substitute for insurance. The rule should be known before events occur: insurance is triggered first, followed by social support for non-insurable needs or situations of extreme vulnerability.
10. Include tenants and small businesses: The system should not protect only the owner of the asset. It should consider contents, temporary rent, loss of use and business continuity, at least for vulnerable groups and small businesses.
11. Coordinate insurance with spatial planning: Mandatory insurance should not normalise new construction in risk areas. Municipalities should integrate risk maps into licensing, emergency plans and preventive investment.
12. Produce an independent fiscal assessment: Before entry into force, there should be an independent assessment of probable maximum losses, fund solvency, the implicit public guarantee and distributive impacts by income and territory.

Publishing Date: 2026-07-09