“In our view, the EU-level solution proposed by Eiopa would be beneficial for the financial strength of the insurance companies exposed to natural catastrophe risk and positive for their credit ratings,” said Mario De Cicco, vice president of global insurance and pension ratings at Morningstar DBRS, in a press statement, referring to the European Insurance and Occupational Pensions Authority, on Monday 24 February 2025. Photo: Morningstar DBRS

“In our view, the EU-level solution proposed by Eiopa would be beneficial for the financial strength of the insurance companies exposed to natural catastrophe risk and positive for their credit ratings,” said Mario De Cicco, vice president of global insurance and pension ratings at Morningstar DBRS, in a press statement, referring to the European Insurance and Occupational Pensions Authority, on Monday 24 February 2025. Photo: Morningstar DBRS

Only 20% of natural catastrophe losses in the European Union are insured, Morningstar DBRS found, as it backed a proposed EU-wide public-private reinsurance scheme to improve coverage and financial stability.

The insurance gap for natural catastrophes in the European Union remained significant, with only 20% of economic losses covered, according to a report published by Morningstar DBRS, a global credit rating agency, on 24 February 2025.

Citing data from the European Insurance and Occupational Pensions Authority (Eiopa), Morningstar DBRS that between 1981 and 2023, natural catastrophes in Europe resulted in €900bn in economic losses, with one-fifth of those occurring in the past three years. However, despite the increasing frequency and severity of climate-related disasters, most losses remained uninsured, particularly in seven EU countries where more than 95% of economic losses were not covered. Only Denmark and Luxembourg had more than half of their natural catastrophe losses insured, the report found.

The report noted that national insurance schemes implemented in Belgium, Denmark, France, Romania and Spain had helped narrow the insurance gap. Italy was also set to introduce a similar scheme by the end of March 2025.

Morningstar DBRS reported that Denmark had the highest level of insured economic losses from natural catastrophes at 69%, followed by Luxembourg at 66% and Norway at 49%, all well above the EU average. France, Germany and Belgium had insured nearly a third of their natural catastrophe losses, at 35%, 33% and 31%, respectively.

Proposal

In response to the persistent insurance gap, Eiopa and the European Central Bank proposed an EU-wide framework to enhance risk-pooling benefits and improve financial stability. Morningstar DBRS stated that the framework included two key components: an EU public-private reinsurance scheme and EU public disaster financing.

The proposed reinsurance scheme aimed to expand insurance coverage for natural catastrophes while ensuring affordability. Morningstar DBRS noted that this mechanism could provide additional reinsurance capacity and serve as a financial backstop for property and casualty insurers. The EU-wide approach could also incorporate alternative risk transfer instruments, such as catastrophe bonds, to strengthen market resilience.

Public disaster financing at the EU level would complement this initiative by supporting government recovery efforts and encouraging risk prevention and climate adaptation measures, ultimately reducing overall exposure to natural catastrophe risks.

Private sector role

Morningstar DBRS found that an EU-wide insurance framework could benefit private insurers by increasing insurance penetration and premium inflows. However, the report also highlighted challenges, particularly insurers’ growing exposure to natural catastrophe risks as extreme weather events became more frequent and severe. Rising insurance and reinsurance costs could further impact affordability, especially in high-risk regions.

Mario De Cicco, vice president of global insurance and pension ratings at Morningstar DBRS, stated that “the EU-level solution proposed by Eiopa would be beneficial for the financial strength of the insurance companies exposed to natural catastrophe risk and positive for their credit ratings. The implementation of the EU public-private reinsurance scheme could provide additional reinsurance capacity in the market and a financial backstop for prevention and climate insurance companies.”

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