Ferma uses consultation to press EU to create pan-European transfer solution for systemic risks

Ferma has told the EU in a public consultation that it should help create a pan-European risk transfer solution for systemic risks because current national insurance pools are insufficient, particularly for business interruption (BI) losses, and make it difficult for companies operating across Europe. In a response to the EC’s public consultation on its renewed sustainable finance strategy, the federation again pushed its proposed Resilience Framework for Catastrophic Risks (RFCR). It aims to tackle the fact there is currently little or no insurance coverage available for non-damage business interruption (NDBI) losses resulting from catastrophic risks in Europe. The RFCR would therefore cover all catastrophic, systemic NDBI risks, including pandemics, a massive cyberattack or climate change threats. The federation told the EC that current existing national insurance pools are only available in a minority of EU member states. Where available, triggers, coverage and funding are inconsistent, continued Ferma. It also pointed out, on behalf of members, that national pools do not cover pan-European losses. “Given the interdependency of European economies, this makes national pools an insufficient solution, particularly for losses caused by business interruption,” wrote Ferma in its response. It added that the “uneven landscape” across member states when it comes to insurance pools “points to a weakness in insurance markets that must be addressed if the EU is to increase the resilience of the internal market”. “Therefore, any EU action in this area will likely result in a high expected impact,” the federation said. It added that there is clearly a role for the EU to facilitate public-private partnerships, or pools, to expand affordable and comprehensive insurance coverage for systemic risks, including climate change. “In some cases, it is beyond the capital of the private insurance market to provide material capacity for the transfer of systemic risks, such as climate change, due to their large-scale effects. Public-private partnerships, such as the RFCR… may help to address this issue, leading to a favourable common insurance approach while also helping to incentivise the accumulation of reserves needed to respond effectively to a range of systemic risks that are currently addressed on an ad hoc basis,” Ferma said in the consultation. The federation previously told CRE it recognises that a “uniform, homogeneous solution” to systemic risk at European level is “impossible”, due to the high complexity of national insurance markets. Therefore, its proposed RFCR scheme would function at four levels to offer pan-European protection. Ferma president Dirk Wegener explained to CRE that the framework’s funding could operate as follows: First layer – risk management/loss prevention and insurance premiums paid by insured companies Second layer – private (re)insurance markets, possibly including alternative risk transfer mechanisms Third layer – national member-state pool guarantees where available Top layer – European Union protection funded largely by public resources, with some premium ceded from (re)insurers. “A European framework based on an insurance mechanism would allow the RFCR scheme to use risk-based, not fixed, pricing in order to incentivise companies to apply risk management measures. Companies/insureds should have to meet a minimum standard as regards risk mitigation measures, such as business continuity management, in order to have access to the protection scheme. For the same reason, payments should be based on individual losses (indemnity) and not a lump sum,” said Mr Wegener. He went on to explain that the EU layer could reinsure private sector (re)insurance companies above a certain threshold of accumulated losses, in exchange for a moderate part of the risk premium. “However, this EU protection layer would largely be supported from public funds. The source or sources of those public funds will need to be determined. A European top layer could provide further backup for national pools, in particular where such pools have still to be created. It could also specifically cover losses resulting from pan-European interruption events that are not covered by national pools,” he added. “Ultimately, we are aiming to mitigate the impact of severe catastrophes on businesses and overall on the single market, through risk management and the creation of capacity for non-damage business interruption. Without risk management by business, NDBI will always be too expensive to cover and the scheme will be seen as another tax,” he told CRE. Ferma used the consultation on renewed sustainable finance to urge the EU to help the insurance market clarify, by industry, the perimeter of climate and environmental risks, and their related effects. It said the current scope of risk is “too broad” for the insurance market to manage without additional support. “Additionally, the EU should consider new cooperative partnerships with insurance companies and other industry representatives, in order to incentivise the accumulation of reserves needed to respond effectively to a range of systemic risks, including climate change and environmental degradation. To that end, Ferma is currently working to develop a Resilience Framework for Catastrophic Risks that will create a multi-layered and graduated public-private partnership to encourage the prudential assessment and identification of risks needed to access public funds, while enhancing coordination across the EU. Should the commission wish to learn more about this initiative, please refer to the position paper included with this consultation, or contact Ferma CEO, Typhaine Beaupérin, directly,” stated Ferma.

Ferma uses consultation to press EU to create pan-European transfer solution for systemic risks

Want to read this article?

Read Next

Action needed to bridge $800bn Asian climate finance gap

Courage and collaboration needed to manage emerging construction sector risks

Dubai floods put $8bn of aircraft at risk, estimates Russell Group

Parima heads to Manila for first of three conferences this year

Munich Re ‘more likely’ to exceed 2024 profit target after €2.1bn gain in Q1

Action needed to bridge $800bn Asian climate finance gap

Courage and collaboration needed to manage emerging construction sector risks

Dubai floods put $8bn of aircraft at risk, estimates Russell Group

Parima heads to Manila for first of three conferences this year

Munich Re ‘more likely’ to exceed 2024 profit target after €2.1bn gain in Q1

Want to read this article?

Read Next

Action needed to bridge $800bn Asian climate finance gap

Courage and collaboration needed to manage emerging construction sector risks

Dubai floods put $8bn of aircraft at risk, estimates Russell Group

Parima heads to Manila for first of three conferences this year

Munich Re ‘more likely’ to exceed 2024 profit target after €2.1bn gain in Q1

Related Articles