ESM-EIOPA Discussion Paper - Sharing the risk: A European approach to natural catastrophe risk management

The increasing frequency and severity of natural catastrophes poses substantial economic and societal challenges across Europe. As risks continue to grow, insurance coverage for such events remains insufficient, leaving individuals, businesses, and governments exposed to financial losses. This paper demonstrates how a European-level risk-sharing mechanism can deliver significant diversification benefits and enable more cost-effective funding, crowding in the private sector. This paper presents modelling results showing how efficiency gains from a European risk pool for natural perils – combined with a loan-based backstop – can enhance the overall risk-bearing capacity and substantially reduce the insurance protection gap.