The proposal is a response to the increasing frequency and severity of natural disasters. Credit: mkfilm/Shutterstock.

The European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA) have proposed a joint paper to reduce the insurance protection gap for natural catastrophes within the EU.  

This initiative builds upon a 2023 discussion paper that advocated a collaborative approach between the private and public sectors to manage natural catastrophe insurance. 

The proposal is a response to the increasing frequency and severity of natural disasters, and the associated economic losses.  

The intention is to offer protection to individuals, businesses and governments, while also addressing the related macroeconomic and financial stability risks within the EU. 

The paper highlights that as natural catastrophes become more frequent and severe, insurance could become less affordable, potentially widening the insurance protection gap. 

It also raises concerns about the affordability of insurance, particularly for low-income households, as premiums are expected to rise with the increasing occurrence of climate disasters.  

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The decline in insurance coverage among households puts additional pressure on governments to provide support in the aftermath of natural catastrophes. 

The proposal include two pillars – an EU public-private reinsurance scheme to enhance coverage for natural catastrophe risks and an EU fund to strengthen public disaster risk management in member states.  

EIOPA chairperson Petra Hielkema said: “Recent events in Europe have shown the challenges the EU and its Member States are facing in dealing with natural catastrophes. This calls for coordinated action. The proposals presented are meant to spark a discussion on possible ways to reduce the insurance protection gap through an EU-level solution, while preserving the integrity of national insurance schemes.”  

ECB vice-president Luis de Guindos stated: “We need to get prepared for the rising climate risks. The proposed solution is one possible way to mitigate the macroeconomic and financial stability risks from natural catastrophes, while also reducing moral hazard.”