On 18 December 2024, the European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA) published a joint paper outlining their proposal to address the growing insurance protection gap against climate change:
“Towards a European system for the management of natural catastrophe risk: the possible role of EU-wide solutions for reducing the climate-related insurance protection gap.”
Overview of the paper
In recent years, climate change has intensified the severity and frequency of natural disasters, leading to devastating human losses and significant economic costs in Europe and globally. These impacts, combined with rapid urbanisation and rising asset values, are increasing economic losses as a large share of these assets remains uninsured. Between 1981 and 2023, extreme climate events caused direct economic damage of around €900 billion in the EU, with more than one fifth of the losses occurring in just the past three years.
Back in April 2023, the ECB and EIOPA published a discussion paper on how to address the growing climate protection gap. It highlighted that historically only about one quarter of losses from extreme climate-related events in the EU were insured, and in some countries this share was even below 5%. With climate change expected to continue in the foreseeable future, closing this protection gap has become more urgent than ever.
The discussion paper stressed the vital role of the insurance sector as a tool for climate change adaptation and effective disaster risk management, by helping policyholders and communities recover more quickly. While the role of insurance as a cornerstone of sound risk management and the benefits of high penetration are undeniable, the paper also emphasised that the private insurance sector cannot tackle these growing risks on its own.
Recent events, such as the 2024 floods in Central and Eastern Europe and Spain, further highlighted the challenges facing the EU and its member states. They illustrated the importance of disaster preparedness, the role of adaptation measures to prevent and minimise losses, and the significance of national insurance schemes in reducing the economic impact of natural disasters. The authors also noted that the EU Solidarity Fund had not met expectations and was too small to provide the necessary support.
From national schemes to a European framework
Building on their 2023 work, the ECB and EIOPA have now published their joint vision. The paper analyses 12 existing national insurance schemes, eight of which are in Europe (Belgium, Denmark, Spain, France, Iceland, Liechtenstein, Norway, and Romania). These schemes use both private and public funds to reduce protection gaps. The analysis shows that such schemes correlate with higher levels of insurance coverage. They are generally designed to extend coverage and promote risk prevention, often by creating risk-based reinsurance structures with public-private coordination, introducing mandatory cover for certain risks, or improving affordability through national solidarity mechanisms.
However, national schemes have limited diversification opportunities compared to what could be achieved at EU level. A European solution would enable broader risk-sharing, more effective adaptation measures, and better risk management prior to catastrophic events.
Proposed EU-level two-pillar system
Based on the experience of national schemes and existing EU structures, the paper outlines a potential EU-level solution consisting of two pillars, embedded in a multi-layered approach:
Pillar 1: EU-wide public-private reinsurance scheme
Pillar 2: EU disaster risk financing fund
The two pillars are designed to complement each other and align with existing national initiatives. They would address market failures in line with the EU principle of subsidiarity, ensuring intervention only where objectives cannot be sufficiently achieved by member states alone.
Next steps
The proposal is intended as a basis for discussion among stakeholders and as a point of comparison with alternative solutions, while preserving the integrity of national schemes. Whether such a mechanism will be established in the EU, as well as its structure and implementation, remains a matter for political debate and decision-making with the involvement of all member states.
You can read the full joint paper by the ECB and EIOPA here: EIOPA publication
