The goal is “to ensure the continued protection of policyholders and the overall stability of the EU’s insurance market amid more erratic and damaging weather patterns,” EIOPA said
Europe’s insurance watchdog has called for a recalibration of capital requirements to reflect rising climate-driven disasters across the continent.
The European Insurance and Occupational Pensions Authority is recommending the industry update the way it accounts for natural catastrophe risks in standard formula calibrations, according to a statement on Thursday.
EIOPA said its recommendations are based on a two-year “comprehensive reassessment exercise” that examined the heightened risks associated with floods, windstorms and other weather-related perils.
The goal is “to ensure the continued protection of policyholders and the overall stability of the EU’s insurance market amid more erratic and damaging weather patterns,” EIOPA said.
Natural disasters in Europe destroyed assets worth $31 billion last year, of which $14 billion were insured, according to a recent estimate by Munich Re. Some of the most-damaging events were floods in Spain, Germany and central Europe.
EIOPA’s reassessment includes new risk factors for 24 regions. It adjusted flood risk factors for three countries and proposed adding seven more for flood risk “after their exposures were found to be material.” The watchdog also said windstorm risk factors should be increased for Iceland and other regions, while hail risk should be raised for Germany, Belgium and Luxembourg.
Other hazards, including wildfire, coastal flooding and droughts, also are on the radar for possible inclusion in EIOPA’s formula calculations. “As the frequency and intensity of certain perils change due to climate change, they may become more relevant for the EU’s insurance sector than they had been in the past,” EIOPA said.The authority is mandated to reassess and potentially recalibrate natural catastrophe risk parameters every five years. EIOPA said it submitted the latest proposal to the European Commission, which is the European Union’s executive arm.
European authorities have become increasingly concerned about the lack of insurance cover for natural disasters. The European Central Bank and EIOPA recently proposed a two-pronged approach to increase coverage, including a voluntary public-private reinsurance partnership and a mandatory EU fund to pay reconstruction costs when catastrophes occur.
As the fastest-warming continent, Europe has been hit by rising extreme-weather losses over the past 15 years. Between 1981 and 2023, natural catastrophes caused about €900 billion ($936 billion) of direct economic losses within the EU, with one-fifth of those losses occurring in the past three years.