Europe ‘can’t cope’ with excessive climate prices, warns insurance coverage watchdog

Europe ‘can’t cope’ with excessive climate prices, warns insurance coverage watchdog | USAEMALL.com

By Press RoomFebruary 3, 20253 Mins Read

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Governments and banks will struggle to cope with the soaring costs of natural catastrophes such as floods and wildfires, the EU’s top insurance regulator has warned.

More households will be unable to insure their homes and the mounting losses from natural disasters could destabilise banks, Petra Hielkema, chair of the European Insurance and Occupational Pensions Authority, told the Financial Times.

“I think it is the biggest risk facing society, frankly,” Hielkema said. “There are a lot of reasons why it could have a financial stability impact — first a lot of property losses need to be paid for and that becomes a problem — also it is a larger problem if people cannot get insurance for their houses and they can’t build.”

The annual cost of EU natural catastrophes, which also include droughts, storms and freezing conditions, has averaged €44.5bn in the three years to 2023, outstripping inflation to more than double from an annual average of €17.8bn in the previous decade, she said.

Yet only about a quarter of the €900bn of losses caused by EU natural catastrophes in the past 42 years were insured and the level of cover has been falling, according to official data.

Eiopa responded last week by increasing the amount of capital that EU insurers have to set aside to cover the risks of natural disasters by 10 per cent, which resulted in an increase of almost 1 per cent in their overall capital requirements.

“The speed at which damages are happening and the frequency and the impact is on such a rise that it really becomes a concern as to how we can cover that,” said Hielkema, adding: “Member states — they can’t cope with this.”

“It is starting to become an agenda item for bankers as they have property on the balance sheet and property can be hit,” she added, echoing a warning from global regulators at the Financial Stability Board last month.

Global insurance losses from natural catastrophes were on track to exceed $135bn last year, according to a report by insurer Swiss Re in December. Governments often end up covering the cost of uninsured losses. In October, the Spanish government pledged €10bn of funding for reconstruction after widespread floods in the Valencia region.

Hielkema said she was pushing the EU to fund a public-private partnership that provides reinsurance for natural catastrophe risks to lower the cost and increase the availability of insurance cover in the region.

The regulator is supporting other moves to tackle the problem. These include impact underwriting, in which insurers make cover conditional on measures to reduce risks, and a labelling scheme to indicate how exposed houses are to risks such as fires and floods.

Underlining fears about the impact of Donald Trump’s return as US president to the White House on efforts to co-ordinate global financial rules, Hielkema said “we assess the risk of geopolitical fragmentation as very high”.

But she expressed confidence that insurance supervisors in the US would remain determined to tackle the risks of natural disasters after the devastating impact of California’s wildfires this month and last year’s hurricanes in Florida.

“There is a political sphere and then there is supervision, which is about risks — and the risks are out there, because the climate is changing,” she said. “I see risks going up and more people not being able to insure their homes.”