Quarter of Nat CAT losses in EU are insured
Source: Middle East Insurance Review | Jun 2023
The European Central Bank (ECB) and European Union insurance regulator (EIOPA) are working to better close the insurance gap and provide improved coverage from climate change by setting up public-private partnerships and issuing catastrophe bonds.
The current uninsured catastrophe losses are creating risks to the EU economy and financial stability.
As only about one quarter of catastrophe losses related to climate change in the EU are insured, the insurance gap is now being viewed as a risk factor to the economy in general and to the EU’s financial stability in particular.
Uninsured households and businesses affected by these catastrophes need substantially longer to recover from flooding, fire and other extreme events according to a whitepaper released by the ECB and EIOPA.
The whitepaper said inaction will only cause the lack of coverage to grow as rising frequency and intensity of events increases premiums and impacts credit supply from high-risk area banks.
Between 1980 and 2020, the EU’s direct aggregate catastrophe losses reached EUR487bn ($535bn). According to estimates published by Swiss Re, the global catastrophe losses in 2022 were $120bn.
The insurance gap has been steadily growing, particularly over the last six years.
The white paper has recommended several potential actions, such as incentivising businesses and individuals to mitigate climate-related catastrophe risks. Such incentives could include rate discounts on policies.
The paper also recommended issuing catastrophe bonds to help shrink the insurance gap. The goal would be to help insurers to spread the risk outward to the capital market, making it easier to control the rise of premiums. This would also have the potential to speed up claims payments following disasters, providing greater economic support. M