Insurance protection gaps in a changing climate

Ladies and Gentlemen,

We stand at a crossroads where climate change, economic transformation, and societal expectations converge in ways that will define our resilience for decades to come. Among one of the most pressing challenges before us is one that cuts across borders, sectors, and institutions: the insurance protection gap in the face of intensifying climate‑related risks.

Over the past years, we have witnessed a clear trend. Losses from climate‑related hazards such as floods, droughts, storms, wildfires, and heatwaves, are rising in frequency, severity, and unpredictability. Global warming has developed rapidly since the 1980’s. In Europe, for example, each of the past four years is among the top five for economic losses caused by climate-related extreme events since 1980. 

Yet the proportion of those losses that are insured is not keeping pace. In many regions of Europe, the protection gap, meaning the difference between total economic losses and insured losses, is very significant, leaving households, businesses, and societies more vulnerable than ever.

EIOPA has been raising the alarm about Europe’s significant protection gap against natural disasters. We do so because the numbers are frankly alarming: only ~25% of natcat losses in the EU have been insured over the past decades. Historical data alone is no longer a reliable predictor of future losses. We are operating in a new risk paradigm. The Network for Greening the Financial System (NGFS) estimates that by 2050, if current policies go unchecked, we are looking at worldwide GDP losses of 15% due to climate-related incidents. The direction of travel is clear: a warmer planet means more extreme weather and heavier losses.

There is a real risk that this already sizeable gap could widen further as natural catastrophes increase, with serious consequences for people’s daily lives and for economic activity in affected regions.

The German Insurance Association recently warned that property insurance premia could double within a decade due to climate‑driven claims. In high-risk areas, insurance may even become unavailable as insurers withdraw coverage or introduce exclusions as risks escalate. Uninsurability will become a tangible problem for certain regions and perils unless we make rapid progress on risk-pooling and mitigation. 

We need collaborative action to address the protection gap, which in turn, will safeguard our financial system and to improve the resilience of our society. 

Allow me to frame my remarks around three core themes:

1. How the protection gap impacts the resilience of our societies and economies.
2. What the insurance sector can do to respond to increasing climate risks.
3. Why we need a structured and coordinated approach to address the protection gap

Ladies and gentlemen,

European citizens and firms are underinsured against floods, wildfires and windstorms. 

The figures are staggering. According to EIOPA’s 2025 Eurobarometer, only 17% of respondents hold coverage for property damage caused by natural catastrophes. 

To better understand these persistently low take‑up rates, EIOPA conducted a study on the behaviour and attitudes that Europeans have toward natural catastrophe insurance. It revealed several demand-side barriers and drivers that impact the willingness of people and businesses to buy NatCat insurance. These include income levels and the perceived unaffordability of coverage, a lack of clarity in terms and conditions, previous negative experiences with insurance claims, and high expectations about state intervention in case of a catastrophe.

EIOPA also examined the clarity of product information, the Insurance Product Information Documents, or IPIDs. While the findings suggested many insurers demonstrate good practices in disclosing information, some IPIDs remain complex and overly reliant on separate policy documents. As a result, many consumers and businesses assume they are sufficiently protected when this is not actually the case. This so-called “insurance illusion” leaves too many home and business owners at risk of natural catastrophes.

For households, this protection gap means that a single climate shock can lead to long‑term financial hardship. 

For small and medium‑sized enterprises, the backbone of the European economy, underinsurance can determine whether they recover from a disaster, or close permanently. Disruptions to supply chains, energy systems, or local infrastructure can ripple across entire sectors.

For governments, the protection gap often results in increasing pressure to act as the “insurer of last resort.” This places significant strain on public finances, especially as disasters become more frequent and more destructive. When fiscal capacity is stretched, the ability to invest in long‑term prevention is weakened, creating a vicious cycle. 

We clearly see that our society’s ability to recover and rebuild from devastating events is at stake. A first conclusion we draw is that better communication, easily accessible and understandable information about the risks, simplified and more customer-friendly processes, as well as more standardised products, could make a difference in addressing protection gaps. 

Let’s now look at what the insurance sector can do to better respond to climate risks.

Insurance has always been a cornerstone of Europe’s resilience architecture. It supports economic activity, strengthens recovery, and provides financial security when people need it most.

But the sector now faces a world where uncertainty is increasing, modelling assumptions are shifting, and long‑established risk patterns no longer hold. Insurers are particularly exposed to climate change – both through the physical risks they face in their underwriting business and the transition risks that come with their investments.

There are several areas where the sector can take the lead, and I would like to cite two such areas.

The first one lies in strengthening underwriting models and risk analytics.

The world of predictable hazard cycles is behind us. Insurers must rely not only on historical claims but increasingly on forward‑looking climate projections, high‑resolution hazard maps, satellite monitoring, and new modelling methods that incorporate deep uncertainty.

More precisely, insurers need to integrate climate scenarios into their underwriting and pricing, use geospatial and remote‑sensing tools to understand exposure more precisely, while leveraging artificial intelligence and machine learning to analyse complex data patterns. Why is this becoming so crucial? Because better data leads to better pricing, and better pricing leads to better risk management.

The second area that insurers need to focus on is in reinforcing the link between insurance and risk prevention.

As with any insurance system, pricing is most effective when it accurately reflects the underlying risks. With climate change, this requires continuous reassessment. Climate risks evolve rapidly, and so must our understanding of them. This is why,  EIOPA recently recalibrated the natural catastrophe capital charges under the Solvency II standard formula, ensuring that prudential requirements remain aligned with the latest scientific evidence and emerging loss patterns across multiple perils and Member States.

But we must also be clear-eyed about the limits of a purely risk‑based approach. If the full burden of rising climate risks is transferred directly to households and businesses through higher premiums, the result will be reduced affordability, lower insurance penetration, and a weakening of societal resilience. That is a lose–lose scenario for policyholders, for insurers, and for public authorities who must intervene when protection falters.

To maintain the delicate balance between actuarial soundness and market viability, stronger adaptation measures are essential. The more we invest in prevention, resilience, and risk‑reducing behaviours, the more viable insurance remains as a tool for protection.

Insurance is not only a financial mechanism; it is a prevention instrument.

Through smart incentives, such as premium discounts for effective mitigation measures, transparent communication of risk, and structured collaboration with local authorities, insurance can help bend the loss curve over time. This concept, often referred to as impact underwriting, enables insurers to encourage and reward policyholders who take meaningful steps to reduce their risk exposure.

EIOPA is currently assessing how such risk‑reducing measures should be recognised within the prudential framework. Our aim is simple: to ensure that the regulatory system supports adaptation, incentivises prevention, and reflects genuine improvements in resilience when they occur.

Climate change challenges traditional approaches to risk assessment, which is why EIOPA continues to strengthen supervisory practices on scenario analysis, stress testing, governance of climate risk, and forward-looking risk management. We do this, while supporting proportional, flexible approaches that allow insurers to test new solutions while ensuring strong consumer protection and fair value.

In this way, the insurance sector can play a central role in aligning economic incentives with climate resilience—helping households, businesses, and communities prepare for the risks of tomorrow, not only recover from the losses of today.

We strongly believe that private insurers should remain the first line of defence against losses from natural catastrophes. Their capacity to absorb losses can be further enhanced by other market-based mechanisms, such as reinsurance and catastrophe bonds. However, private solutions alone cannot fully shoulder the impact of rare but extremely severe events. There are climate risks that private markets alone cannot absorb, because they are too large, too correlated, or too complex.

European coordination can enhance the climate insurance landscape through robust frameworks to address shared challenges. 

EIOPA has worked alongside the European Central Bank to develop a set of policy options to increase the uptake of nat. cat. insurance and reduce the climate insurance protection gap in Europe. In a second joint paper, we have outlined a two-pillar structure designed to strengthen the EU’s resilience to natural catastrophes. The first pillar called for a public-private EU reinsurance scheme, which would pool private risks and expand insurance coverage across Member States. The second pillar would establish an EU disaster fund, focused on enhancing public disaster risk management and calling for EU-wide coordination.

The decision to establish such mechanisms will rest with political leaders and key decision makers at national and EU level, but their mere proposal serves to stimulate discussion.

Together, these forms of cooperation would strengthen the economic resilience, affordability and availability of insurance protection across Europe, while supporting a more forward‑looking understanding of climate risks.

Ladies and gentlemen, the climate protection gap will not close on its own. No single sector can solve this challenge, nor can any single country. All stakeholders have a part to play, from individual citizens and businesses to insurers, reinsurers, national governments and EU institutions.

Let me conclude with this thought: climate change is reshaping our risk landscape, but it does not have to reshape our capacity to protect our societies. 

We have the knowledge.
We have the tools.
We have the institutional framework.
And, most importantly, we have a shared commitment to safeguarding Europe’s future.

EIOPA will continue to champion this agenda, committed to protecting policyholders, safeguarding financial stability, and supporting a resilient, inclusive, and sustainable Europe. 

Later today, in the next panel, my colleague Marie will provide further details on EIOPA’s work looking at helping to address the insurance protection gaps.

Thank you.