A paper by the European Insurance and Occupational Pensions Authority (EIOPA) and the European Stability Mechanism (ESM) proposes a European-level risk-sharing mechanism comprising a natural catastrophe insurance pool and a loan-based backstop, aimed at enhancing overall risk-bearing capacity and reducing Europe’s significant protection gap.
The rising frequency and severity of natural catastrophes pose substantial economic and societal challenges across Europe. As risks continue to grow, insurance coverage remains insufficient, leaving individuals, businesses, and governments exposed to financial losses.
The ESM and EIOPA discussion paper noted that primary insurers, reinsurers, market-based solutions, and, where available, national schemes should continue to play a key role in spreading natural catastrophe risk. However, their capacity may be insufficient to absorb losses from large-scale disasters, which are becoming more likely in a warmer climate.
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