Ferma backs Eiopa and ECB proposal for EU-wide nat cat pool

Ferma is backing proposals for an EU public-private reinsurance scheme to mitigate the impact of natural catastrophes put forward by the European Insurance and Occupational Pensions Authority (Eiopa) and European Central Bank (ECB) in December. The two regulators laid out a two-pillar solution in their Towards a European System for Natural Catastrophe Risk Management joint paper to help close the widening insurance protection gap for nat cat risks. The plan is underpinned by the creation of a public-private EU reinsurance scheme to reduce economic exposure to the increasing frequency and severity of such events. The regulators said that pooling private risks for natural perils across the EU would diversify coverage for high risks and could be funded by premiums from insurers or national insurance schemes. The proposal also discusses the potential to transfer part of the risk through a pan-European catastrophe bond covering multiple perils. A second part of the solution would establish an EU fund for public disaster financing to support disaster risk management in member states. This would be financed by contributions from EU countries to pay for rebuilding infrastructure damaged in nat cat events. The proposal states that this would be dependent on member states implementing agreed risk mitigation measures ahead of an event, and membership of this part would be mandatory. The recently published European Preparedness Union Strategy (EPUS) by the European Commission lent its support to the proposals and now the federation of European risk managers has done the same. “Ferma welcomes the proposed EU public-private reinsurance scheme as a vital step in addressing the growing natural catastrophe protection gap,” said the federation’s president Charlotte Hedemark. In a position paper responding to the proposals, Ferma says it “fully supports” the model put forward by Eiopa and the ECB, stating that “risk-based pricing enhances risk awareness, encourages preventative measures, and reinforces best practices already implemented by private (re)insurers and their corporate clients”. “Ferma also believes that the creation of a dedicated EU-wide reinsurance pool would allow Europe to regain pricing sovereignty, reduce price volatility, and foster greater stability in insurance costs, benefitting businesses, insurers and consumers alike,” it adds. Hedemark said the scheme’s success will depend on close collaboration among stakeholders, consistent data practices and clear legal and operational structures. “Ferma is committed to playing a constructive role throughout the development and implementation of this critical initiative for Europe’s resilience and competitiveness,” she said. Ferma used its position paper to outline several key considerations to help the initiative succeed. It says that consistent data is vital for accurate risk assessment, setting fair premium and effective claims processing. Highlighting disparity in how national nat cat schemes and different insurers collect data, the federation therefore urges regulators to define what data data would be collected, standardise methodologies and establish robust governance systems. Ferma also says that a diverse and sufficiently large EU pool is essential to avoid disproportionately high premiums, so recommends further studies to determine the optimal scale for risk diversification and pricing stability. It would like to see a framework that ensures meaningful private sector participation and a minimum participation threshold. Ferma goes on to call for a clear regulatory framework to provide certainty around contractual obligations, claims processing and dispute resolution for those involved in the scheme. However, the federation warns that care must be taken to avoid introducing unnecessary costs or administrative burdens. Drawing attention to the volatility created by annual insurance renewals, Ferma also suggests integrating mechanisms that assess returns over multi-year periods to promote market stability and ensure any pool’s long-term viability and private sector engagement. And it calls for a “structured, continuous consultation process involving policymakers, (re)insurers, and risk managers throughout the initiative’s development”. Finally, Ferma believes the reinsurance scheme should be leveraged to incentivise and finance risk prevention and mitigation efforts, in order to ensure sustainable, long-term funding for natural catastrophe damage compensation. Ferma’s Position Paper is available here.

Ferma backs Eiopa and ECB proposal for EU-wide nat cat pool

European risk manager federation committed to playing a constructive role throughout scheme’s development and implementation

Want to read this article?

Read Next

BIBA hands out key awards at annual conference

BIBA wants time limit on key disclosure requirements

Dutch risk managers urged to embrace uncertainty and work collectively to seek solutions

Uncertain world demands sharp focus on the basics

Product recalls in Europe hit 11-year high in Q1: Sedgwick

BIBA hands out key awards at annual conference

BIBA wants time limit on key disclosure requirements

Dutch risk managers urged to embrace uncertainty and work collectively to seek solutions

Uncertain world demands sharp focus on the basics

Product recalls in Europe hit 11-year high in Q1: Sedgwick

Keep yourself informed

Sign up for Commercial Risk’s newsletters

Want to read this article?

Read Next

BIBA hands out key awards at annual conference

BIBA wants time limit on key disclosure requirements

Dutch risk managers urged to embrace uncertainty and work collectively to seek solutions

Uncertain world demands sharp focus on the basics

Product recalls in Europe hit 11-year high in Q1: Sedgwick

Related Articles

Keep yourself informed

Sign up for Commercial Risk’s newsletters