According to Petra Hielkema, Chair of the European Insurance and Occupational Pensions Authority (EIOPA), "Governments and banks in Europe will be unable to cope with the rising costs of natural disasters, such as floods and wildfires." Over the past three years, the average annual cost of natural disasters in the EU has reached €44.5 billion, more than double the previous decade’s average of €17.8 billion. Of the €900 billion in losses caused by these disasters over the past 42 years, only a quarter has been insured, and this coverage continues to diminish.
The increasing frequency and intensity of extreme weather events are leading to higher premiums for covering associated risks. According to Ernst Rauch, Chief Geoscientist and Climate Scientist at Munich Re, "The amount of insured losses from natural disasters worldwide amounts to around $100 billion annually, with 80-90% of these losses being related to weather conditions."
This situation poses significant challenges for the insurance market, as companies are forced to raise premiums or reduce coverage in high-risk areas. The reduction in the availability and affordability of insurance provided by the private sector is a concerning trend.
In light of these developments, several solutions are being proposed to address these challenges, such as public-private partnerships and "impact underwriting," aimed at reducing costs and increasing the availability of insurance. Additionally, EIOPA has increased by 10% the capital that EU insurers must maintain for natural disaster risks, strengthening the resilience of the sector.
Europe faces the challenge of adapting to new climatic conditions, while ensuring the financial sustainability of the insurance market and protecting its citizens’ assets. Collaboration between governments, insurance companies, and private individuals is essential for developing sustainable solutions that respond to evolving needs and ensure resilience against climate risks.
