Impact underwriting: EIOPA reports on insurers’ use of climate-related adaptation measures in non-life underwriting practices

The European Insurance and Occupational Pensions Authority (EIOPA) published today a report on insurers’ inclusion of adaptation measures to climate change in their non-life underwriting practices. The report is the outcome of a pilot exercise on impact underwriting that EIOPA conducted with 31 volunteering insurance undertakings from 14 European countries in 2022.

Currently only 23% of the total losses caused by extreme weather and climate-related events across Europe are insured, leading to a substantial insurance protection gap, which is expected to become even wider given the current climate projections. Climate-related adaptation measures, such as anti-flood doors and windows, heat- and fire-resistant construction materials against exterior fire exposures or weather alert systems, can reduce the policyholder’s physical risk exposures and insured losses. Therefore, they can be a key tool to maintain the future availability and affordability of non-life insurance products providing coverage against natural catastrophes. Ultimately, adaptation measures can help to reduce the climate-related insurance protection gap in Europe.

The report assesses the industry’s current underwriting practices regarding climate change adaptation and their prudential treatment under Solvency II. Therefore, it evaluates whether the prudential framework introduces any obstacles which could hinder the widespread use of adaptation measures in non-life insurance products.

While progress is being made in how insurance undertakings are adapting their non-life underwriting practices to climate change, the report shows that the EU insurance market overall appears to be at a relatively early stage. EIOPA sees further room for improvement especially in terms of standardising the implementation of climate-related adaptation measures in insurance contracts, for instance through dedicated risk-based certificates and programs.

With the aim to foster climate change adaptation in non-life insurance in the EU, EIOPA will continue its work on impact underwriting to help overcome some of these challenges. This includes raising public awareness about climate risks and related prevention measures as well as promoting the use of open-source modelling and data.

Read the report