Report
As climate impacts intensify, Europe’s insurance coverage is shrinking, leaving taxpayers and businesses to bear rising losses beyond what reinsurance or mutual schemes can handle. This report shows how conditionality, public directionality, and prudential reform can help scale up climate investment to halt the spiral of uninsurability at its source.
Spiraling uninsurability: a threat to public finances
Europe’s insurance sector faces mounting pressure as climate disasters drive record losses. With only a quarter of climate-related natural catastrophe damages insured, households, businesses, and governments are increasingly exposed. As premiums rise and coverage shrinks, the cost of disasters shifts onto society, threatening economic development and fiscal resilience.
European solidarity with conditional support
A European catastrophe risk framework, as proposed by the European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA), could enhance coverage. However, conditionality to access EU-level support should be key. Insurers and Member States must implement credible transition and adaptation plans aligned with EU climate goals to avoid perpetuating the risks they seek protection from. Yet, this alone cannot offset escalating climate losses in the long term and complementary measures must be considered.
Closing the investment gap to address the insurance gap
Long-term resilience depends on closing Europe’s vast climate investment gap. Even with a finalised Capital Market Union and a solid sustainable finance framework, private capital alone cannot deliver the scale required; reforming the EU’s public finance architecture is essential to mobilise large-scale, sometimes unbankable investment in mitigation and adaptation.
On top of this, Finance Watch proposes adding a third pillar to the ECB and EIOPA approach – focused on the asset side – where more effective public-private financing tools and mechanisms could help direct capital flows where they most strengthen climate resilience.
Extending the time horizon of prudential regulation
Current prudential frameworks typically discourage investment in long-horizon projects and neglect systemic, long-term climate risks. Introducing climate-related capital buffers – reduced for investments in mitigation and adaptation – would price in transition and long-term risks and reward early action. Such reforms would extend investment horizons across the financial sector without compromising stability.
