Climate risks driving exclusions, raising premiums says Europe’s insurance watchdog

Home and business owners face more exclusions and higher premiums following three years of increased intensity of natural disasters, Europe’s top insurance regulator said last week, as she called for more work to be done on an EU-wide scheme to help mitigate the cost of large-scale catastrophes.

Sustainability data was also essential for modelling climate risk, said Petra Hielkema, chair of the European Insurance and Occupational Pensions Authority (EIOPA), in a keynote speech at the pan-European regulator’s Sustainable Finance Conference in Frankfurt.

Hielkema said almost 20% of the 900 billion euros of direct economic loss from natural catastrophes since 1980 had occurred in the past three years. However, European citizens often lacked awareness and or understanding of their vulnerability to financial loss from natural catastrophes, and more needed to be done to educate and incentivise people to reduce their exposure, she added.

Impact underwriting — which rewards those who take steps to mitigate climate exposure with lower premiums — and publicly accessible tools designed to raise awareness of exposure to natural disasters would help, Hielkema said.

Pan-EU reinsurance scheme

In December, EIOPA and the European Central Bank (ECB) proposed the establishment of a EU-wide public-private partnership to better pool risk, alongside an EU public disaster fund. The latter would assist in rebuilding public infrastructure following a natural disaster, provided member states implement “agreed mitigation measures” prior to any catastrophe.

Some member states already have these reinsurance-of-last-resort arrangements in place.

“The intention is not to replace [national schemes] but to acknowledge that a coordinated European response can offer more robust protection against growing climate risks. And let me be clear: this is not about merely sharing losses. It is about taking a collective European approach to addressing a problem that concerns us all,” Hielkema said.

Data and modelling

Last month the European Commission published an omnibus package intended to simplify the EU’s sustainable reporting rules. Hielkema said EIOPA welcomed the initiative’s intention to deliver a more proportionate regulatory framework, but simplification could not come at the expense of financial stability or consumer protection.

“[The omnibus ] must ensure that the data collected remains impactful, meaningful and sufficient. Given the mounting climate risks, we need high-quality sustainability data to help (re)insurers and occupational pension funds identify, measure and manage sustainability-related risks,” she said.

“Sustainability reporting is what enables us to get complete, comparable information, to better understand sustainability challenges and support effective supervision.”

EIOPA would work with industry, national regulators and the European Commission to ensure the reform struck the right balance, Hielkema said.  

The recent comprehensive reassessment of natural catastrophe risks in the Solvency II standard formula was an example of how regulation could be adapted to remain fit for purpose. Flood, hail, earthquake and windstorm risks had all been recalibrated to reflect the evolving risk landscape observed in recent climate data, she added.