A proposed public-private reinsurance scheme for climate-related losses in the European Union could enhance market stability and insurance availability, according to Fitch Ratings.
The initiative, published in December by the European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA), aims to pool risks across EU member states, strengthening insurers’ financial resilience amid increasing climate-related risks.
Fitch notes that the proposed framework would function alongside existing national insurance schemes rather than replace them. It follows the model of Spain’s Consorcio de Compensación de Seguros (CCS), which has played a role in maintaining insurance market stability by covering extensive losses from natural disasters.
By diversifying risk across the bloc, Fitch says that the EU scheme could help insurers and reinsurers continue providing cover in high-risk areas, where market participation has been declining due to rising climate-related losses.
As per the proposal, the ECB and EIOPA highlighted a solution comprising two interconnected pillars. The first is an EU public-private reinsurance scheme designed to increase insurance coverage for natural catastrophe risks.
Funding would come from risk-based premiums paid by re/insurers or national insurance schemes.
“This calls for coordinated action. The proposals presented are meant to spark a discussion on possible ways to reduce the insurance protection gap through an EU-level solution, while preserving the integrity of national insurance schemes,” EIOPA chairperson Petra Hielkema (pictured above) said.
Climate change has intensified the insurance protection gap for natural catastrophes. Between 1981 and 2023, only about 25% of economic losses from such events in the EU were insured, with this percentage decreasing over time.
The proposed reinsurance mechanism seeks to address this gap by improving both the affordability and availability of cover, offering financial protection for insurers while also supporting economic recovery and reducing the fiscal burden on governments from uninsured losses.
The proposals also include measures to reinforce public disaster risk management within the EU. A separate fund, financed by member states, would be established to support the reconstruction of public infrastructure after natural disasters. Member states would be required to implement agreed risk mitigation measures to qualify for payouts.
This combined approach aims to reduce macroeconomic and financial stability risks associated with uninsured losses, providing a clearer division of responsibilities between the private and public sectors while encouraging risk mitigation efforts at both the national and EU levels.
Fitch highlights that one of the key challenges noted in the proposals is the issue of insurability and affordability in high-risk areas. Until robust state-backed reinsurance structures are established, insurers may limit coverage in regions most exposed to climate risks.
This concern was reflected in a poll conducted during Fitch’s Insurance Insights event in London, where 69% of participants identified the reduction of coverage in high-risk areas as the most immediate effect of climate change on the insurance sector in 2025.
What are your thoughts on this story? Please feel free to share your comments below.
