A new proposal calling for a European natural catastrophe insurance pool to diversify risks across countries and perils could be further enhanced by the insurance-linked securities (ILS) market, according to the European Insurance and Occupational Pensions Authority (EIOPA) and the European Stability Mechanism (ESM).
In a joint paper recently published by the two organisations, they suggest that a risk-based, premium-financed, EU-wide nat cat pool could significantly increase insurance penetration for severe natural disasters such as floods, droughts, storms, and wildfires.
In the paper, it is argued that a pool solution combined with an additional loan-based backstop for extreme tail events that exceed the pool’s capacity, could reduce the insurance gap to roughly 10% at European level for properties.
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