LONDON, April 24 (Reuters) – Issuing “disaster bonds” and organising public-private partnerships might assist plug the “insurance coverage hole” to higher cowl injury from local weather change, a dialogue paper from the European Central Financial institution and European Union insurance coverage regulators stated on Monday.
Solely 1 / 4 of EU climate-related disaster losses are insured, creating dangers to the financial system and monetary stability from uninsured households and companies not with the ability to recuperate rapidly from excessive occasions like hearth or flood, the paper from the ECB and EU insurance coverage watchdog EIOPA stated.
With out motion, the insurance coverage hole might widen as extra frequent and intense occasions result in larger premiums, and influence credit score provide from banks in excessive danger areas.
Direct combination disaster losses within the EU totaled 487 billion euros ($535 billion) between 1980 and 2020, and insurer Swiss Re has estimated there have been $120 billion of disaster losses globally final yr.
Six consecutive years of above-average losses have pushed property disaster reinsurance costs up, with European charges rising by 30% on the January 2023 renewals, worldwide dealer Howden has stated.
“With the intention to effectively shield our society, we have to tackle the priority of the rising insurance coverage safety hole by proposing and discovering applicable options,” EIOPA chairperson Petra Hielkema stated in an announcement.
Actions might embody incentivising folks and companies to mitigate in opposition to climate-related disasters by providing reductions on insurance policies, the paper stated.
Issuing disaster bonds might assist insurers move on a number of the danger to the capital market to maintain a lid on premiums, the paper stated. Taking motion would pace up pay-outs after disasters to keep away from successful the financial system.
Nationwide-level insurance coverage schemes may be complemented by an EU-wide public scheme that makes positive ample funds are made accessible to European international locations for reconstruction following uncommon, large-scale climate-related catastrophes, the paper stated.
Responses to the paper can be mentioned at a workshop on Could 22.
($1 = 0.9104 euros)
Reporting by Huw Jones
Enhancing by Bernadette Baum
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