The European Central Bank (ECB) and the European insurance supervisory authority EIOPA on Monday 24 April put forward the idea of creating a European public insurance scheme against major climatic disasters, in a memorandum that suggests several regulatory avenues to remedy the shortcomings observed in this area.
Acting as a complement to existing national schemes, this scheme would have the advantage of spreading the risks among EU Member States in order to minimise the costs of a disaster. It would focus on the medium-term post-disaster reconstruction effort, while the ‘EU Solidarity Fund’ is more involved in providing emergency aid to affected countries. In order to limit moral hazard, the activation of this scheme would be conditional on the implementation of prior climate risk prevention and mitigation measures in Member States.
The ECB and EIOPA note that currently only a quarter of weather-related losses are insured on average. In some countries (Italy, Hungary, Romania, Bulgaria, Cyprus, Greece, Latvia) this ratio is even lower than 5%.
However, with climate change, the frequency and severity of natural disasters tend to increase, so that some insurers may reduce the protection offered. This would further widen the gap between potential losses and the protection offered.
In addition to the creation of a European scheme, the two supervisors advocate measures that would encourage households and companies to protect themselves against climate risks by offering, among other things, premium reductions for actions that reduce and mitigate risks. Insurance contracts could be further securitised for transmission to investors in the capital markets. In addition, public-private partnerships could be set up at the national level to provide guarantees to insurers taking on climate risks.
The ECB and EIOPA proposals will be discussed at a stakeholder workshop on Monday 22 May in Frankfurt. Interested parties have until mid-June to comment on these proposals.
See the joint document: https://aeur.eu/f/6i9 (Original version in French by Mathieu Bion)