By Simon Jessop, Kate Abnett and Virginia Furness
LONDON/BRUSSELS (Reuters) – Europe’s businesses and homes need to increase their insurance cover to better withstand climate catastrophes, the European Central Bank and the EU’s insurance regulator said on Wednesday as they proposed policies that could boost uptake.
With just a quarter of natural catastrophe losses currently insured and the gap set to widen as climate change makes disasters more frequent and severe, the damage caused by these events is posing risks to the broader economy and financial stability, they said.
To help people cope, the European Union should launch a bloc-wide public-private reinsurance scheme to increase cover for climate-linked disasters and pool private risks, the ECB and European Insurance and Occupational Pensions Authority (EIOPA) said in a joint paper.
“We need to increase the uptake of climate catastrophe insurance to limit the growing impact of natural disasters on the economy and the financial system,” said ECB Vice-President Luis de Guindos.
Europe is the world’s fastest-warming continent, and EU countries have suffered a string of severe climate-related disasters this year. October floods in Spain killed more than 220 people, while drought has ravaged Italy’s agriculture industry and Greece continued to face severe wildfires.
The EU-wide reinsurance scheme would be funded by risk-based premiums from insurers or national insurance schemes, the ECB and EIOPA said.
More frequent climate disasters are expected to push up existing premiums, which the paper warned would make insurance less affordable for low-income households.
In addition, the take-up of insurance coverage has declined among low-income households, the paper found, increasing the pressure on governments to provide support in the event of a natural catastrophe.
It also called for a new EU fund to help rebuild public infrastructure after disasters, financed by the bloc’s member states. To be eligible for the money, countries would need to have already put in place measures to minimise climate risks.
EIOPA Chairperson Petra Hielkema said it was vital to address the “increasing insurance protection gap”, to protect businesses and people against climate-fuelled losses.
(Reporting by Simon Jessop in London and Kate Abnett in Brussels. Editing by Mark Potter)
