The European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA) have proposed an EU-level approach to reduce the economic impact of natural disasters, building on existing national and EU structures.
The proposal consists of two complementary pillars. The first is an EU public-private reinsurance scheme aimed at increasing insurance coverage for natural disaster risks. By pooling risks across the EU, this scheme could benefit from economies of scale and help spread the burden of high risks across Europe. It would be funded by risk-based premiums from re/insurers or national insurance schemes.
The second pillar is an EU fund for public disaster financing, designed to strengthen disaster risk management in Member States. Financed by contributions from Member States, this fund would help rebuild public infrastructure after natural disasters, provided that Member States have implemented agreed risk mitigation measures in advance to minimise the risk of moral hazard.
The proposal seeks to protect people, businesses, and governments from losses, while addressing macroeconomic and financial stability risks in the EU. It does so by promoting risk mitigation and adaptation, and clarifying the roles of the private and public sectors.
Petra Hielkema, EIOPA Chairperson, commented, “Recent events in Europe have shown the challenges the EU and its Member States are facing in dealing with natural catastrophes.”
She added, “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.”
Luis de Guindos, Vice President at ECB, said, “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.”
