Insurance Europe

The natural catastrophe (NatCat) protection gap in Europe presents a pressing challenge for policymakers, regulators, insurers, and reinsurers alike.

The escalating frequency and intensity of extreme weather events, exacerbated by climate change, alongside increasing urbanisation and the concentration of asset values, are likely to contribute to rising economic losses stemming from NatCat events. This trend not only has significant financial implications but also poses considerable societal challenges that warrant thoughtful consideration and action. Taking prevention measures remains the most effective lever to structurally and sustainably reduce the long-term cost burden of NatCat losses.

Closing the Gap. Not the market: A Reinsurer’s Blueprint for NatCat Resilience in Europe, prepared by the Reinsurance Advisory Board (RAB) of Insurance Europe, highlights the essential role that reinsurers play in mitigating the impacts of NatCat events.

Read the paper here:

Closing the gap. Not the market.

Through their global diversification, capital strength, and advanced risk modelling expertise, reinsurers are well-positioned to partner with a well-functioning insurance market to address the supply-side dimension of the protection gap, and support for resilience both before and after disasters. While the European insurance and reinsurance sector has demonstrated its ability to absorb rising NatCat losses, the NatCat protection gap within the EU27 remains pronounced, driven primarily by insufficient insurance take-up and limited investment in adaptation in higher-risk areas.

The paper also provides insights into the various factors contributing to the NatCat protection gap, primarily attributing it to insufficient demand. It also explores the potential risks associated with state reinsurance schemes, particularly when not appropriately designed, as they can create misleading pricing signals that undermine investments in prevention measures and may adversely affect the private insurance and reinsurance market. Finally, the paper suggests that public authorities should focus on developing and implementing land-use and building code regulations appropriate for high-risk areas, raising awareness and promoting investment in adaptation strategies. By doing so, authorities can stimulate demand for NatCat insurance covers and facilitate the design of adequate solutions for areas exposed to frequent and/or severe NatCat hazards.

At a time when the European Commission is considering policy options under its climate resilience framework, this paper offers evidence-based considerations to support the wider discussion. Its recommendations aim to highlight where public action and market mechanisms can complement each other, while recognising the supply-side willingness and capacity to take on additional NatCat risk as demand increases. A balanced approach that strengthens insurance take-up, maintains access to global reinsurance, and encourages adaptation in higher-risk areas can help contribute to a more resilient and coherent response to NatCat challenges across Europe.