The European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA) have issued a joint working paper calling on insurers to close the gap in the natural catastrophe coverage.
The two institutions estimate that only 25% of losses caused by natural disasters [4] such as floods, storms and forest fires are insured in Europe. This rate is below 5% in some EU countries such as Lithuania, Hungary, Bulgaria, Italy, Greece, Malta and Cyprus. Many people underestimate the costs of climate-related damage and even prefer to rely on government support.
Industry professionals expect natural disasters and weather-related losses to escalate in intensity and frequency in the future. The insurance coverage gap could have a significant impact on European countries' economies and financial stability.
In order to boost the penetration rate of this type of insurance, the ECB and EIOPA have outlined in their document some solutions that insurance companies could adopt:
- proposing attractive offers to households and companies such as discounts on insurance policies,
- extending the issuance of cat bonds, allowing insurers to transfer the risk to the market,
- establishing public-private partnerships,
- creating an EU-wide public scheme to complement the national insurance plans.