In recent years, Spain has faced a succession of severe weather events that have exposed significant weaknesses in the country’s current insurance framework for extraordinary risks.

The catastrophic floods that hit Valencia, and the widespread damage they caused, have reignited debate across the insurance and legal sectors about whether the existing voluntary model is fit for purpose.

Under the current structure, extraordinary risk insurance, managed by the Consorcio de Compensación de Seguros, is only compulsory for those who underwrite insurance against damages and some personal lines. This dependency means that companies and individuals without a basic policy have no access to compensation when catastrophic events occur.

As natural disasters increase in frequency and intensity, so too do the numbers of uninsured victims left without financial support. This systemic gap is likely to trigger a surge in litigation, as those denied coverage attempt to challenge decisions by insurers and the Consortium in court.

However, access to coverage is not the only issue. Underinsurance has become one of the most pressing problems, particularly in the industrial sector. Many businesses insure their assets at values far below their true replacement cost. When disaster strikes, they often receive only partial compensation, leaving them with substantial financial shortfalls. This is frequently a consequence of limited awareness of how insurance calculations work, combined with a market reluctance to address the issue. Added to this, policy features such as deductibles, which in high-value industrial claims can run into hundreds of thousands of euros, and the seven-day waiting period applied to newly contracted policies create further vulnerabilities.

A compulsory insurance system would eliminate these inconsistencies. By requiring all property owners to participate, the scheme would ensure that every individual and business has access to meaningful protection. The system could be managed by the Consortium, using real estate tax to administer coverage efficiently and comprehensively. Importantly, making the insurance compulsory would broaden the funding base, reducing costs for all policyholders and creating a more sustainable model. This mirrors the successful compulsory insurance framework already operating in motor vehicle liability in Spain, where universal participation enables broad coverage at reasonable cost.

As climate risks escalate, relying on voluntary insurance uptake becomes increasingly untenable. The current system leaves too many gaps that translate into financial hardship, legal disputes, and operational uncertainty for businesses. Compulsory extraordinary risk insurance offers a forward-looking solution that prioritises fairness, resilience and collective responsibility. It ensures not only that victims of future catastrophes receive the compensation they urgently need, but also that society adopts a predictable and equitable approach to managing the financial consequences of extreme events.

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