EIOPA and ECB joint paper: Towards a European system for natural catastrophe risk management

As natural catastrophes become more frequent and more severe, insurance is expected to become less affordable and the already sizeable insurance protection gap is likely to widen further. 

The paper shows that national public-private insurance schemes are helping to reduce the insurance protection gap in several countries. It examines how these schemes make use of private and public funds to do so. 

Building on existing national and EU structures, EIOPA and the ECB propose a possible EU-level solution composed of two complementary pillars: 

• An EU public-private reinsurance scheme to increase the insurance coverage for natural catastrophe risk. By pooling private risks and perils across the EU, this scheme would exploit economies of scale and diversify the coverage of high risks at the European level. It would be funded by risk-based premiums from (re)insurers or national insurance schemes. 
• An EU fund for public disaster financing to reinforce public disaster risk management in Member States. Financed by contributions from Member States, this fund would help rebuild public infrastructure following natural disasters, subject to Member States having implemented agreed risk mitigation measures prior to the event to minimise moral hazard.

The paper builds on the policy options presented in a 2023 joint ECB-EIOPA discussion paper which advocated a ladder approach to natural catastrophe insurance involving both the private and public sectors.