EU insurance markets could gain if recent proposals for a bloc-wide public-private reinsurance scheme for climate-related losses move forward, according to Fitch Ratings review. As climate risks grow, state-backed reinsurance could help insurers and reinsurers maintain coverage in high-risk areas they might otherwise avoid. Beinsure analyzed the report and highlighted the key points.
A joint paper by the ECB and the European Insurance and Occupational Pensions Authority, published in December 2024, outlines a plan to strengthen insurers’ financial stability by pooling risks across the EU. This would improve diversification and resilience.
The approach follows the model of Spain’s Consorcio de Compensacion de Seguros (CCS), which has stabilized the Spanish market by covering large-scale disaster losses.
The EU scheme would support national systems rather than replace them, ensuring they remain effective. Government-backed catastrophe insurance schemes play a vital role in managing the financial impact of natural disasters across Europe. These programs provide a safety net for insurers and policyholders by offering coverage for extraordinary risks like floods, earthquakes, and other natural perils.
European government-backed catastrophe insurance scheme
In Spain, the Consorcio de Compensacion de Seguros (CCS) acts as a state-managed insurer, funded through mandatory surcharges on policies. France operates a comprehensive system through its Cat Nat scheme, supported by the state-owned CCR, which provides reinsurance guarantees for natural disasters. Germany does not have a national catastrophe insurance scheme, leaving insurers to rely on private mechanisms (see about European System for Natural Catastrophe Risk Management & Re/Insurance).
These schemes reflect varying levels of state involvement in disaster risk management. While some countries prioritize comprehensive government-backed solutions, others rely more on private markets.
As climate change intensifies the frequency and severity of natural disasters, the role of these schemes becomes increasingly crucial in supporting insurance markets and ensuring resilience for communities.
Comparison of Approaches
- Spain and France: Both have established robust government-backed schemes that reduce financial volatility for insurers and ensure widespread coverage for policyholders.
- Germany: Relies solely on private market mechanisms, which increases financial vulnerability for insurers and leaves gaps in coverage for high-risk properties.
- Italy: Aims to bridge the gap with its upcoming program for SMEs, combining state reinsurance through SACE and mandatory coverage.
The unpredictability of such events may also lead insurers to withdraw from high-risk areas. Low awareness of risks and reliance on government disaster aid further suppress insurance adoption among individuals and businesses.
Between 1981 and 2024, natural catastrophe-related extreme events caused around €900 bn in direct economic losses in the EU, with more than a fifth of the losses occurring in the last three years (2021: €65 bn; 2022: €57 bn; NatCat in 2023: €45 bn)
The floods of 2024 in central and eastern Europe, as well as in Spain, highlighted the challenges extreme weather poses to the EU and its Member States. These events emphasized the importance of emergency preparedness, risk mitigation, and adaptation to prevent and minimize economic losses.
They also underscored the need for effective national insurance schemes to reduce the financial burden of natural disasters and address the growing insurance protection gap, which places increasing strain on public finances.
Insurance protection gap for natural catastrophes
If adopted, the plan could help narrow the widening insurance protection gap for natural catastrophes. Climate-related disasters are becoming more frequent and severe, yet only about a quarter of economic losses from natural catastrophes in the EU between 1981 and 2023 were insured. This share has been shrinking.
The proposed public-private reinsurance scheme aims to improve the affordability and availability of insurance coverage for natural catastrophes.
It would not only provide a financial safety net for insurers but also aid economic recovery after natural catastrophes and reduce fiscal burdens on governments from uninsured losses. The scheme would be funded by risk-based premiums from insurers and reinsurers, or national insurance schemes.
The new EU strategy on adaptation to climate change highlights the fact that affordability and insurability of natural catastrophes insurance coverage is likely to become an increasing concern.
Research shows that in the past only a quarter of the total losses caused by extreme weather and climate-related events across Europe were insured indicating a large insurance protection gap in Europe.
Improved climate projections provide further evidence that future climate change over the coming decades will increase climate-related extremes (e.g. heavy precipitation, droughts, flood…) and thus the related protection gap, if no measures are taken.
It is therefore key to understand the insurance protection gap and identify where it comes from. EIOPA’s therefore developed a pilot dashboard which shows the insurance protection gaps for many natural catastrophes in Europe.
Protection gaps cannot be addressed by increasing insurance penetration alone. It goes without saying that the best solution is to reduce the causes of climate change.
The dashboard aims to represent the drivers of such climate-related gap in order to identify measures that will enhance society’s resilience in the event of natural catastrophes. At the same time, the pilot dashboard should also help increasing the awareness and promote a science-based approach.
EU public disaster risk management
The initiative also proposes to strengthen EU public disaster risk management by establishing a fund, financed by member states, to support the reconstruction of public infrastructure following natural disasters. Payouts would be contingent on member states having implemented agreed risk mitigation measures.
This dual approach of reinsurance and public financing is designed to reduce macroeconomic and financial stability risks associated with uninsured losses by clarifying the division of responsibilities between the private and public sectors.
It also seeks to incentivise risk mitigation and adaptation at both the national and EU levels.
A significant challenge highlighted by the proposals is the issue of insurability and affordability in high-risk areas. Until robust state-backed reinsurance mechanisms are in place, insurers are likely to reduce coverage in these regions.
This concern was echoed in an audience poll at Fitch’s recent Insurance Insights event in London, where 69% of participants indicated that reducing cover in high-risk areas would be the most imminent consequence of climate change on the sector in 2025.
This sentiment underscores the need for state-backed reinsurance to maintain insurance availability and affordability. The floods in Spain in November 2024 exemplified the benefits of state-backed schemes in mitigating financial impacts on insurers, with the CCS helping to stabilise the market through effective compensation for flood-related damages.
Most impact of Climate Change for the insurance industry in 2025
The complementarity of the two pillars would ensure the efficient use of private and public sector funds for natural disaster payouts, while also encouraging ex ante risk mitigation.
- First, this approach would improve cost efficiency by covering risks ex ante across households, businesses and governments. The two pillars would enhance risk pooling and provide incentives for risks to be borne at the lowest possible level.
- Second, the approach recognises the primary role of the private insurance sector in covering most of the damages caused by a disaster, thus reducing the need for public financing for damage caused to households and businesses. Third, and importantly, it is compatible with national initiatives for improving insurance coverage, through schemes or funding solutions.
At the same time, the approach acknowledges that governments retain certain responsibilities, including the reconstruction of public infrastructure. While in principle each pillar could be implemented independently as a stand-alone instrument, the
pillars would reinforce each other and be more effective if implemented jointly.
Ideally, the two pillars should work in unison to provide incentives for ex ante risk mitigation and additional financial support for the highest loss layer natural catastrophes, for the ultimate benefit of households, businesses, and governments.
FAQ: EU Public-Private Reinsurance Scheme for Climate-Related Losses
The European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA) have proposed a bloc-wide public-private reinsurance scheme to address climate-related losses. The initiative aims to strengthen financial stability by pooling risks across EU member states, ensuring insurers can continue providing coverage in high-risk areas.
By offering state-backed reinsurance, the plan would reduce insurers’ financial risk, allowing them to maintain coverage in regions prone to natural disasters. This structure would help limit premium increases and prevent insurers from withdrawing from high-risk locations due to escalating climate-related losses.
Spain and France have established government-backed schemes to stabilize insurance markets. Spain’s Consorcio de Compensacion de Seguros (CCS) and France’s Cat Nat system provide reinsurance guarantees for extreme weather events. Germany, however, relies solely on private mechanisms, leaving insurers more financially exposed. Italy is developing a hybrid model for small and medium-sized enterprises (SMEs), combining state-backed reinsurance with mandatory coverage.
Only about 25% of economic losses from natural disasters in the EU between 1981 and 2023 were insured, with this share declining. The proposed scheme would improve affordability and coverage availability, reducing the financial burden on governments and taxpayers when disasters occur.
The proposal suggests funding through risk-based premiums paid by insurers and reinsurers, as well as contributions from national insurance schemes. This model aims to distribute financial responsibility fairly while ensuring sufficient funds for disaster recovery.
The initiative also includes a fund to support the reconstruction of public infrastructure following natural disasters. Member states would contribute to this fund, with payouts dependent on implementing agreed-upon risk mitigation measures. This approach would help manage economic losses while incentivizing preventive action.
A key challenge is ensuring insurability and affordability in high-risk areas. Without strong state-backed mechanisms, insurers may reduce coverage in vulnerable regions. A recent Fitch Ratings survey found that 69% of insurance professionals believe reduced coverage in high-risk areas will be the most significant impact of climate change on the sector in 2025. This highlights the urgency of implementing effective reinsurance solutions.
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AUTHORS: Alberto Messina – Senior Director, EMEA Insurance at Fitch Ratings, David Prowse – Senior Director, Credit Commentary & Research at Fitch Wire
