Issuing “catastrophe bonds” and creating public-private partnerships could help fill the “insurance gap” and better cover damage caused by climate change, a discussion paper by the European Central Bank and European Union insurance regulators said on Monday. Only a quarter of climate-related losses in the EU are insured, creating risks for the economy and financial stability as uninsured households and businesses are unable to recover quickly from extreme events such as fires or floods, the ECB and European Insurance and Occupational Pensions Authority (EIOPA) said in a paper. Without action, the insurance gap could widen as more frequent and intense events lead to higher premiums and affect the supply of credit from banks in high-risk areas. Direct total catastrophe losses in the EU reached €487 billion ($535 billion) between 1980 and 2020, and insurer Swiss Re estimates that there were $120 billion in catastrophe losses worldwide last year. Six consecutive years of above-average losses have led to higher property catastrophe reinsurance prices, with European rates set to rise by 30% when they renew in January 2023, international broker Howden said. “To effectively protect our society, we need to address concerns about the growing insurance coverage gap by designing and finding appropriate solutions,” EIOPA President Petra Hielkema said in a statement. Measures could include incentivizing people and businesses to mitigate the effects of climate-related disasters by offering discounts on policies, the document said. Issuing catastrophe bonds could help insurers shift some of their risk to the capital market to keep premiums under control. Measures would speed up the disbursement of funds after disasters to prevent the economy from being hit. National insurance schemes could also be complemented by a pan-European public scheme to ensure that European countries have sufficient funds to rebuild after rare large-scale climate-related disasters. 
(Reuters)