Strong and convergent supervision for a resilient (re) insurance sector

In line with its Strategy Towards 2030, EIOPA aims to support a resilient and thriving insurance sector in the Single Market, through the consistent implementation of regulatory requirements and the promotion of high-quality supervisory practices. To achieve these objectives, EIOPA fosters greater convergence in supervising sustainability risks across the EU and promotes the development of meaningful, forward-looking risk assessments that strengthen insurers’ long-term resilience to sustainability risks. 

This is an important area, given the increasing volume of insured losses and failures caused by natural catastrophes. Supervisory practices continue to evolve, and different maturities are observed across jurisdictions, therefore improvement of supervisory capacity and further efforts towards supervisory convergence remain a priority.

EIOPA’s objectives are achieved through supervisory activities.

First, in 2024, following up on its Opinion, EIOPA conducted a supervisory monitoring exercise focused on climate. It showed that most insurers include climate change scenarios in their Own Risk and Solvency Assessment (ORSA), considering both transition and physical risks. However, less than half consider climate risk material, primarily due to physical risks. Despite this result, EIOPA is of the view that managing transition risks, including through decarbonisation targets, is a core element in ensuring the insurance sector's contribution to the transition to a greener economy. Solvency II requires a clear plan to manage those risks – this can be done within the existing prudential framework.

Second, alongside climate change, biodiversity loss is a significant source of financial risk both on investments and underwriting. In 2025, EIOPA identified that 20% of insurers conduct biodiversity risk assessments, which are mostly qualitative in nature. This is related to the challenges in quantifying such risks because of their complexity and their interconnectedness with climate risk factors. The exposures may arise across a range of sectors, through emerging diseases and the degradation of ecosystem services, which can affect the frequency and severity of insured losses, and lower the value of investment portfolios. EIOPA analysis based on 2023 data shows that around 30% of insurers’ direct corporate bond and equity exposures are highly dependent on at least one ecosystem service, such as freshwater availability. 

Third, EIOPA recently launched a peer review to be finalised in 2027, as a powerful tool to seek convergence across supervisors and build capacity. It will focus on the integration of the sustainability risks in the governance in (re)insurers and the integration and application of sustainability risks into the prudent person principle.

Fourth, the risk-based approach requires that supervisors build a sufficient understanding of sustainability risks. EIOPA provides national supervisors with a framework for sharing experiences and methodologies and continues its work on the integration of sustainability risks into the prudential framework or developing tools to support effective supervision. This involves leading capacity building activities, enhancing the availability and quality of climate change-related data and supporting risk-based and forward-looking approach to the supervision of sustainability risks. 

Finally, due to the sector’s interconnection with banking, cross-sectoral supervision builds upon sectoral supervisory convergence. Covering physical risks in the insurance sector is the foundation for sustainable banking activities, while the management of transition risks by banks provides a solid basis for insurers to cope with their own transition risk. 

With regard to data quality and availability, challenges in quantifying sustainability risks remain despite improvements in the disclosure framework. Innovative solutions can support insurers and supervisors. For example, the collaboration between EIOPA and the EU Agency for the Space Programme (EUSPA), which is exploring how Copernicus data could be harnessed to enhance the supervision of natural catastrophes, showcases the value of innovation in addressing the challenges posed by climate-related disasters. Financial supervisors rapidly identify affected areas and exposed insurers using satellite imagery to map disaster-affected areas as events unfold. This granular geospatial data can be matched with Solvency II regulatory reporting to estimate the potential impact of natural catastrophe events on individual insurers (micro-prudential perspective); also, to estimate overall loss-magnitudes early on by scaling up to the sector (macro-level perspective); and improve benchmarking, model validation and scenario and stress test design.

To conclude, as sustainability risks are here to stay, supervision will remain essential to safeguarding insurers' resilience and protect consumers.

Thanks to Daniel Perez and Ursula Bordas  for their contribution to this article.