Eiopa developing nat cat PPP recommendations
It also advocates impact underwriting to reduce the overall climate risk as Europe seeks solutions to nat cat protection gap
Europe’s insurance supervisor Eiopa said it is actively working on firm recommendations for new public-private partnerships (PPP) to insure more climate risk, alongside analysis that could drive forward the development of an EU-wide scheme.
Responding to a major report earlier this week by the Climate Resilience Dialogue, convened by the European Commission, which highlighted the role PPPs could play at national and EU level in closing the natural catastrophe protection gap in Europe, Eiopa said it “supports such partnerships as they can promote risk prevention and adaptation, reduce the cost of the risk transfer ex ante and incentivise the supply of and demand for insurance”.
Eiopa’s analysis of its database, which measures insurance protection gaps in all EU member states as well as their exposure to perils, found that only about a quarter of weather and climate-related economic losses are insured in Europe. It warned that as losses from nat cat events increase, “the shrinking availability and rising cost of insurance will only widen the insurance protection gap, amplifying the economic costs, systemic risks and fiscal pressure on governments”.
It disclosed: “Eiopa is working on concrete recommendations regarding the key features of public-private initiatives that can improve the affordability of insurance and reduce the burden on national governments. Our analysis of existing private-public schemes can inform the development of a potential EU-wide solution and provide momentum for it.”
Eiopa warned that “no region is safe from the harmful effects of a changing climate” after recent incidents of flash floods in Germany, torrential rain in Slovenia, and heatwaves and wildfires across the Mediterranean. “The recent natural catastrophes are not isolated incidents but a feature of a new climate reality.”
One of 17 stakeholders forming the Climate Resilience Dialogue, Eiopa said it has been developing the concept of “impact underwriting”, where insurers incentive customers to reduce their risk exposure, for example through premium discounts, to reduce climate risk and lower claims costs to keep cover affordable.
It explained that measures to reduce the overall risk sit alongside efforts to close the protection gap through greater insurance penetration for nat cat exposures.
“While increasing climate insurance penetration helps make households and businesses more resilient, it does not reduce the overall risk, potentially putting the affordability, and, ultimately, the availability of insurance products in danger,” it said.
“Ultimately, more proactive measures may be needed to keep certain regions insurable,” it warned, adding that where private insurers can no longer offer cover at affordable rates, building codes may need to be revised. “We must not shy away from using current knowledge and the latest scientific data to assess where and how it is safe to build homes and where it may no longer be viable,” it said.
“Bringing demand-side insights and impact underwriting together, Eiopa is developing a blueprint for a practical tool to enhance risk awareness and improve society’s and the industry’s grasp of related prevention measures, with the aim of reducing insured losses and supporting the take-up of insurance coverage,” it said.
