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2024-04-23
The head of the European Union's insurance regulator has brought focus on the critical need for prompt measures to shield Europe from climate risks, citing the increasing economic impact of natural disasters leading to fears of certain regions becoming uninsurable.
Petra Hielkema, chair of European Insurance and Occupational Pensions Authority, or Eiopa, the regulatory body for EU insurers, emphasized the pressing need for action to tackle the increasing losses stemming from natural disasters like floods and wildfires.
In an interview with the Financial Times newspaper, Hielkema proposed various solutions, such as enhancing building regulations, establishing national and EU-wide risk-sharing programs, and expanding involvement in reinsurance markets.
With climate change intensifying the impact of extreme weather incidents, insurance costs are rising and fears are emerging of an impending "insurability" crisis, she said.
"All actors need to move," said Hielkema, adding that the "easy solution" of merely excluding high-risk regions from insurance was not advisable.
"If you do that, you will, in the end, lose trust and lose your reason to be there," said Hielkema.
According to Eiopa data, the EU faced economic losses exceeding 50 billion euros ($53.3 billion) from natural disasters in both 2021 and 2022, surpassing the annual average of the previous decade by more than three times.
The substantial losses highlight a significant "protection gap", as on average, only a quarter of these economic losses are insured, prompting concerns from EU insurers who anticipate the need to respond to the climate threat by increasing prices significantly or excluding certain areas.
"What you now see is governments starting to realize that (responding to disasters) through just public spending might not be the best way forward. They are more and more open to discussions, and we also see more public-private partnerships develop," said Hielkema.
Governments share the burden of losses incurred from natural disasters together with the insurance sector, or do it by establishing frameworks to consolidate risk, noted the FT.
Surging insurance costs were "a reflection of the risks, and the risks are going up, and they are going up quickly. It's a call for action", Hielkema added.
Europe faces climate threats endangering critical sectors such as energy, food security, ecosystems, infrastructure, water resources, financial stability, and public health, according to the European Environment Agency.
The latest evaluation from the agency, which was published last month, warned that these risks have escalated to critical levels and pose the potential for catastrophic outcomes without immediate and resolute intervention.
The assessment found Europe's policies and efforts to adapt were lagging behind the swiftly increasing risks posed by climate change. Simply making gradual adjustments may not be effective in many instances, it said.
Because enhancing climate resilience often demands significant time, urgent interventions might be necessary, even for risks that have not yet reached critical levels, it noted.
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