European Central Bank and EIOPA seek more comprehensive protection against natural disasters

The European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA) have presented a joint concept paper aimed at reducing the insurance gap for natural disasters within the EU. This initiative builds on a 2023 discussion paper that advocated cooperation between private and public actors to address natural disaster insurance. In light of more frequent and intense natural disasters, as well as the associated economic losses, the proposal aims to provide comprehensive protection for individuals, businesses, and governments. At the same time, it seeks to address the macroeconomic and financial stability risks associated with these events in the EU. As the paper illustrates, insurance coverage could become increasingly unaffordable, potentially widening the insurance gap. Particularly, lower income groups might face difficulties in securing insurance as premiums are expected to rise with the increase in climate-related disasters. The resulting decline in household insurance coverage also places a greater burden on governments, which are called upon in the aftermath of natural disasters. The proposal includes two main components: an EU public-private reinsurance system to expand insurance coverage against natural disaster risks and an EU fund to enhance public disaster risk management within member states. EIOPA Chair Petra Hielkema emphasized: “Recent events in Europe highlight the challenges the EU and its member states face in dealing with natural disasters. This requires coordinated action. The presented proposals are meant to initiate a discussion about possible pathways to reduce the insurance gap through an EU-level solution while maintaining the integrity of national insurance systems.” ECB Vice-President Luis de Guindos stated: “We need to prepare for increasing climate risks. The proposed approach is a way to mitigate the macroeconomic and financial stability risks posed by natural disasters while reducing moral hazards.”