Breaking the Insurance doom loop – Finance Watch report

Europe is entering a spiral of uninsurability. As climate disasters intensify, costs are rising faster than the insurance system can cover. Premiums are soaring, coverage is shrinking, and public budgets are increasingly stretched. The latest Finance Watch report offers solutions, including using EU disaster funds to co-finance resilience projects, reforming prudential rules, and incentivising private investment in climate mitigation and adaptation.

The ECB and EIOPA rightly proposed a catastrophe risk framework, made up of two pillars:

1. A European reinsurance mechanism
2. A disaster response fund

These are important steps, but they only mutualise losses, helping pay for damages after they occur. Without action to reduce the underlying risks, the spiral of uninsurability will continue.

The report makes concrete proposals to turn this principle into action. Build on EIOPA and ECB proposals, and introduce a third pillar into the catastrophe risk framework:

• Use the EU disaster and reinsurance schemes to incentivise climate resilience measures like flood defences. 
• Introduces climate capital buffers that shrink for investments in mitigation and adaptation, giving financial institutions a direct incentive to fund long-term resilience. 
• Harmonise definitions of “impact” to target unbankable projects and shape directionality of the investments.