NatCat Reality Check

Ladies and gentlemen,

It is truly a pleasure to join you all here today in Athens, a city of long-lasting tradition, resilience and transformation. Athens is also a city that, throughout its long history, has stood up to earthquakes, extreme summer heatwaves, wildfires, and floods, as many other regions not only in Greece, but also on the whole European continent.

The Natural Catastrophes Summit comes at a very timely moment. If you read recent European newspapers, you surely came across headlines like these ones:

'Deadly May heatwave shatters records across Europe'.

'Mind-bogglingly crazy': Europe's deadly, early heatwave is smashing records.'

'Italy on red alert as France, Portugal beat May record'…

Europe has experienced an exceptional heatwave at the end of May this year, with temperature records broken across multiple countries, 10 to 15°C above average for this time of year.

Unfortunately, headlines like these are not sensational anymore. This is our new reality. Global warming has developed rapidly since the 1980's, with Europe being the fastest-warming continent. Greece is very well placed to know this reality.

We all know that a warmer planet means more extreme weather. Climate-related hazards such as floods, droughts, storms, wildfires, and heatwaves, are rising in frequency, severity, and unpredictability. In Greece, earthquakes, drought and wildfires are the highest risks.

And such hazards inevitably bring about losses. In Europe each of the past four years is among the top five for economic losses caused by climate-related extreme events since 1980. Historical data alone is no longer a reliable predictor of future losses. The Network for Greening the Financial System (NGS) estimates that by 2050, worldwide losses due to climate-related incidents can amount to up to 15% of GDP under a Current Policies scenario.

Yet, the proportion of those losses that are insured is not keeping pace.

In many regions of Europe, the protection gap, meaning the difference between total economic losses and insured losses, is very significant. Only ~25% of NatCat losses in the EU have been insured over the past decades. Compared to other European countries, EIOPA's NatCat dashboard shows that the protection gap in Greece is high, especially for earthquake and wildfire. The data available to EIOPA shows that less than ~5% was covered for all perils since 1980. This is an alarmingly low figure!

For households, this protection gap means that a single climate shock can lead to long-term financial hardship.

For small and medium-sized enterprises, the backbone of the European economy, underinsurance can determine whether they recover from a disaster, or close permanently.

For governments, the protection gap often results in increasing pressure to act as the "insurer of last resort."

This places significant strain on public finances, especially as disasters become more frequent and more destructive. When fiscal capacity is stretched, the ability to invest in long-term prevention is weakened, creating a vicious cycle.

Furthermore, lower insurance penetration usually also means longer recovery time, which amplifies the 2^nd order effects of the catastrophe.

So we clearly see that the resilience of our society in face of devastating events is at stake. I am very pleased to see here today leaders and representatives from various industries, academia, as well as decision makers from the public sector, because natural catastrophes are everyone's problem and it's only together that we can find solutions.

The insurance sector is clearly a key player in the equation, and its role needs to be strengthened. As a European Supervisory Authority, a key strategic activity area of EIOPA is to strengthen the resilience of the European society against risks. This includes, among other, the reduction of existing natural catastrophe insurance protection gaps, which risk widening further in light of the impacts of climate change.

Allow me first to explain why the insurance protection gap is so high, to understand what are the factors that hinder insurance coverage uptake.

EIOPA has carried out several studies in the past years to better understand what is at stake.

On the demand side, our research revealed a lack of awareness and misperception of risk among consumers.

Many Europeans simply underestimate their exposure to natural catastrophe risks and the potential financial impacts. Other barriers are linked to income levels and the perceived unaffordability of coverage. Last, but not least important, there are often high expectations about state intervention when catastrophes occur, which upon materialization lead to the widening of the insurance protection gap.

Achieving behavioural change depends on greater awareness. We need to do more to educate, to inform and to incentivize consumers to contribute to climate risk adaptation. One way to do this is through impact underwriting.

Another way is by providing consumers access to tools designed to raise awareness. And this is why we are proposing the development of a tool (that we named Protect), which would help consumers better understand how vulnerable their properties are to natural hazards, the importance of having proper insurance coverage and how insurance works in their country, as well as the steps they can take to prevent or reduce potential damage.

On the supply side, we observe increasing exclusions and rising premiums in high-risk areas, making coverage unaffordable for many precisely when they need it most. Although exposures are a driver of increased losses, as these have come up with more construction in places with more risks, and rising costs to recover losses, that have gone up with inflation, also contribute, Climate change also plays a significant role.

The German Insurance Association recently warned that property insurance premia could double within a decade due to climate-driven claims. In high-risk areas, insurance may even become unavailable as insurers withdraw coverage or introduce exclusions as risks escalate. Uninsurability will become a tangible problem for certain regions and perils unless we make rapid progress on risk-pooling and adaptation.

This brings me to the second part of my intervention, what change is needed to build a more resilient and better-protected Europe. First, I'll speak about how risk pooling can support insurability as risks become more correlated. Second, I'll talk about how innovation can support resilience and coverage and finally, about adaptation measures.

1. Risk pooling: a coordinated approach to address the protection gap

We strongly believe that private insurers should remain the first line of defence against losses from natural catastrophes. However, there are climate risks that private markets alone cannot absorb because they are too large, too correlated, or too complex.

The capacity of the insurance sector to absorb losses can be further supported by well-designed risk-pooling structures that leverage diversification across countries and perils.

This is why we think that European coordination can enhance the climate insurance landscape through robust frameworks to address shared challenges.

EIOPA has worked with the European Central Bank as well as with the European Stability Mechanism on very concrete elements of such a framework.

With the European Central Bank we developed policy options to increase the uptake of NatCat insurance and reduce the climate insurance protection gap in Europe. We introduced a four-step approach, starting with mitigation and adaption, followed by insurance, reinsurance and financial markets, and ending in public private partnerships, first at national level and then at EU level.

Together, we dove further into that last step and outlined a two-pillar structure designed to strengthen the EU's resilience to natural catastrophes. The first pillar calls for a public-private EU reinsurance scheme, which would pool risk-based private risks and expand insurance coverage across Member States. The second pillar would establish an EU disaster fund, focused on enhancing public disaster risk management and calling for EU-wide coordination.

Building on this work, more recently we partnered with the European Stability Mechanism to quantify the key elements of risk-pooling framework - our work estimated that a European natural catastrophe pool, diversified across countries and perils, could reduce the capital needed to support the aggregated risk by up to 67% compared with separate national solutions.

The proposed risk management mechanism included a loan-based backstop that would complement this European layer with an additional financial safety net for extreme events that exhaust the pool's capacity.

The idea that these mechanisms can support and strengthen existing market and national mechanisms, contributing to the availability and affordability of insurance, in the long term, is crucial.

When designed well, such structures ensure that no single entity carries the full burden of a "financial earthquake". They can make coverage available and affordable where it might otherwise disappear, while still preserving the central role of private insurers and market-based mechanisms.

The decision to establish such mechanisms will rest with political leaders and key decision makers at national and EU level.

1. Innovation and technology

What is in our hands and should become everyone's day to day toolkit is forward-looking innovation and technology. The world of predictable hazard cycles is behind us. Insurers must rely not only on historical claims but increasingly on forward-looking innovation and technology. Climate projections, high-resolution hazard maps, satellite monitoring, new modelling methods and AI are now on the table.

More precisely, insurers need to integrate climate scenarios into their underwriting and pricing, use geospatial and remote-sensing tools to understand exposure more precisely, while leveraging artificial intelligence and machine learning to analyse complex data patterns.

Why is this becoming so crucial? Because better data leads to better pricing, and better pricing leads to better risk management.

For insurers, new technologies can also mean more accurate underwriting, better portfolio management and faster claims handling. It also gives a hint at where prevention and adaptation measures - e.g. flood walls, fire-resistant materials - will have the greatest impact. Early-warning systems can also play a substantial role in the reduction of financial and human costs of natural catastrophes.

New opportunities are emerging to monitor risks, but innovation is not just about better data - it is about enabling smarter supervision, where limited resources are directed to the right firms, at the right time, before vulnerabilities turn into crises.

This is an exciting emerging field, where further work is required to unlock the benefits that can arise from combining new technologies and data with traditional models and ground evidence.

1. Adaptation

Finally, allow me to speak about adaptation and prevention.

To maintain the delicate balance between actuarial soundness and market viability, stronger adaptation measures are essential. What I mean by adaptation is not necessarily linked to responding to disasters; it is about preparing for them by taking measures that can reduce losses when catastrophes strike. The more we invest in prevention, resilience, and risk-reducing behaviours, the more insurance remains as a protection and prevention instrument.

This is an area where insurers can play a huge role, using their risk expertise to model positive societal behaviour. By using smart incentives, such as premium discounts for effective mitigation measures, transparent communication of risk, and structured collaboration with local authorities, insurance can help bend the loss curve over time. This concept, which we refer to as impact underwriting, enables insurers to encourage and reward policyholders who take meaningful steps to reduce their risk exposure, supporting the creation of a business case for climate adaptation.

EIOPA is currently assessing whether such risk-reducing measures should be recognised within the prudential framework. Our aim is simple: to ensure that the regulatory system supports adaptation, incentivises prevention, and reflects genuine improvements in resilience when they occur, without compromising financial safety and soundness.

Ladies and gentlemen,

No single sector can solve this challenge, nor can any single country. All stakeholders have a part to play, from citizens and businesses to insurers, reinsurers, national governments and EU institutions.

Insurers, as the first line of defence against climate-related perils, must lead by example, by integrating sustainability into underwriting, investing in resilient infrastructure, and closing the protection gaps that leave too many vulnerable.

Policymakers, for their part, must institute the frameworks that facilitate this transition, ensuring that regulation and incentives align with the scale of the challenge.

Supervisors, like ourselves, have a role to play in analysing risks, proposing solutions, raising awareness, fostering dialogue, and ensuring that climate-related risks are not just acknowledged but actively managed.

Thank you for your attention and I look forward to listening to Stavros Konstantas from the Bank of Greece to learn more about the protection gap in Greece and how it's being dealt with from a supervisory perspective, as well as to the next speakers, which I am sure, will nuance and complement some of the points I touched upon today.