EU’s Regulatory Body calling for immediate Action to address the climate-related risks facing the insurance industry
The EU’s insurance regulator chair emphasized the need for immediate action to shield Europe from climate-related risks, given the escalating economic toll of natural disasters that could render certain areas uninsurable.
Petra Hielkema, leading Eiopa, the bloc’s insurance overseer, underscored the rising losses from events like floods and wildfires, urging collaboration among companies, member states, and wider society. She proposed various strategies, including stricter building codes, establishing national and EU-wide risk-sharing schemes, and leveraging reinsurance markets more extensively. “All stakeholders must act,” she told the Financial Times.
Her alert comes amidst climate change’s exacerbation of extreme weather, pushing insurance costs higher and sparking concerns about an “insurability” crisis. Some major insurers have ceased new operations in California due to a surge in weather-related losses.
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Hielkema cautioned against merely excluding high-risk areas from coverage as an “easy solution,” highlighting the risk of losing trust and purpose by doing so.
The EU faced over €50 billion in economic losses from natural disasters in both 2021 and 2022, far exceeding the prior decade’s average. Only about a quarter of these losses are typically insured, creating a substantial “protection gap.”
Governments are increasingly open to partnerships with insurers to address disaster response beyond public spending. Floods in several European countries last year heightened insurance costs for severe weather risks.
Hielkema stressed the urgency for adaptation measures, like bolstering building and agricultural resilience. Simplifying insurance policies and increasing investments in insurance-linked securities are also on Eiopa’s agenda.
Reinsurers, while contributing to affordability issues, need to embrace social responsibility alongside profits, according to Hielkema. Eiopa is fostering public-private collaborations to enhance insurance accessibility and affordability, including proposing an EU-wide scheme for major events, though challenges like moral hazard must be navigated carefully.
