The natural catastrophe insurance gap: is a centralised European backstop the solution?

The challenge: the natural catastrophe insurance protection gap

In December 2025, EIOPA and the ECB, published their proposal of an EU-level scheme to address natural catastrophe insurance protection gaps.¹ This comes after EIOPA and ECB published a paper in April 2023 discussing policy options to reduce the climate insurance protection gap.² The new paper notes that climate change is increasing the frequency and severity of natural catastrophes in Europe and this causes strain on individuals, companies, financial infrastructures and states. Reducing the natural catastrophe insurance gap – the difference between uninsured losses and total economic losses of such events – is therefore only increasing in importance.

The paper highlights the following pressures:

• Economic losses: Between 1981 and 2023, natural catastrophes caused €900 billion in losses across the EU, with over 20% occurring in just the past three years. According to EIOPA’s dashboard, only around 20% of economic losses generated by catastrophes in the EU are insured.
• Reinsurance market pressures: Due to rising risk of natural catastrophe events, property catastrophe reinsurance rates have risen by about 75% since 2017 and are expected to continue rising. This trend is pushing up premiums from primary insurers, making coverage less accessible and potentially widening the protection gap.
• Insurance coverage gaps: The share of low-income consumers with insurance for natural catastrophe-related property damage has declined from around 14% in 2022 to 8%. Insurance protection gaps amplify the costs of disasters for individuals and states, and can impact GDP growth and inflation. In a context of more intense and frequent natural catastrophes and (re)insurance rate increases, EIOPA and the ECB expect the insurance protection gap to continue growing.

The proposal: An EU-level scheme

The EIOPA and ECB paper then outlines a proposed scheme to address the challenges. It states that an EU wide scheme could be composed of two pillars:

• A permanent EU public-private reinsurance scheme that would cover a range of natural catastrophe risks. By pooling risks across Member States, it would leverage economies of scale to stabilise premiums and improve access to insurance, and it would be permanent in nature allowing risk to be pooled over time, enhancing diversification and long-term resilience. Funded through risk-based contributions from (re)insurers or national schemes, it would also incentivise investment in risk mitigation and adaptation. Cover would be provided on an indemnity basis to ensure payouts reflect actual losses. Participation would be voluntary for private (re)insurers and national schemes.
• An EU disaster relief fund to support post-disaster reconstruction of public infrastructure and reduce fiscal strain after disasters. It would be mandatory for all EU Member States, and financed by Member State contributions based on each state’s risk profile, implementation of risk-mitigation measures and adoption of measures to ensure adequate levels of private insurance cover.

The scheme could transfer risks to capital markets via issuing catastrophe bonds, including a pan-European catastrophe bond covering more perils than the bonds currently issued. The catastrophe bond market is less developed in the EU than in North America. This could have the added benefit of fostering a more mature European catastrophe bond market.

The analysis: For and against an EU level scheme

National schemes

Across the European Union and in the United Kingdom, national schemes already exist to address growing natural catastrophe insurance protection gaps. Across the European Economic Area, EIOPA and the ECB identify 12 national schemes including those in France, Denmark, Italy and Denmark. These schemes vary in scope and structure, reflecting the diverse risk profiles and insurance markets of individual countries. However, many Member States do not have a national scheme in place.

Examples of national schemes include:

• France’s Catastrophes Naturelles (CATNAT) scheme. Established in 1982, it is a permanent scheme underpinned by a public-private partnership and backed by the state-owned reinsurer Caisse Centrale de Réassurance (CCR). It is one of the most comprehensive schemes in place. It aims to ensure universal access to affordable cover for perils such as floods, earthquakes, and droughts, and requires natural disaster coverage as part of all property insurance policies. Premium surcharges are fixed by the government, promoting solidarity across risk zones. Compensation is triggered by an official government declaration of a natural disaster, ensuring consistency and transparency.
• The UK’s Flood Re scheme. Whilst not in the EEA or EU, the UK’s scheme is a good example of a targeted national scheme. Launched in 2016 in response to the devastating floods of 2012, Flood Re is a public-private reinsurance initiative designed to make flood insurance more affordable for residential properties in high-risk areas. It is funded by an annual levy paid by all UK home insurers. It is scheduled to end in 2039, and is intended as a transitional measure to address market inefficiencies. It is tailored to the UK’s specific geographic and climatic vulnerabilities—namely, a high risk of flooding but relatively low exposure to other perils such as wildfires or earthquakes.

The national approach ensures the scheme is relevant to the climate of the country, allows for an efficient allocation of resources in line with political ideology and can be tailored to specific socio-economic conditions to maximise cost-effectiveness.

However, the increasing frequency and severity of natural catastrophes is intensifying strain on national systems. For example, France’s CATNAT scheme has experienced growing economic losses in recent years prompting an increase in premium surcharges starting in 2025—from 12% to 20% for property insurance—to maintain the scheme’s viability,³ and France’s reinsurer, CCR, anticipates a 40% rise in claims by 2050 solely due to the impacts of climate change.⁴

An EU-level scheme

The proposed EU-level scheme offers a bold response to the growing insurance protection gap from natural catastrophes. By pooling risks and resources across Member States, it could enhance financial resilience of Member States and the insurance industry, reduce premiums, and improve access to insurance and disaster recovery support. Advantages include:

• Risk diversification. If a single Member State experiences multiple severe events—such as successive floods—the financial burden on its insurance and reinsurance systems can be overwhelming. By pooling risks across the EU, the impact of localised disasters on insurers, reinsurers and Member States can be smoothed out, thereby reducing volatility and enhancing resilience.

• Solidarity: National schemes operate on a self-reliance model, where each Member State bears the full cost of its own disasters. This can be particularly challenging for smaller or less affluent nations who may struggle to fund adequate protection or recovery efforts. An EU-level scheme introduces solidarity mechanisms, allowing Member States to contribute based on their risk profile and capacity, while benefiting from shared resources in times of crisis. This promotes a more equitable distribution of disaster recovery support and reduces fiscal strain on individual governments.
• Financial resilience: The EU scheme could also leverage the collective financial strength of member states and insurers, making it more attractive to global investors. This would facilitate the issuance of pan-European catastrophe bonds, helping to spread risk beyond the insurance sector and improve overall financial resilience. This supports continued insurance offerings for high risk perils.

However, stakeholders have raised concerns about the scheme’s structure—particularly around cross-subsidisation, unequal benefits between Member States, and disruption to existing national systems:

• Insurance Market Diversity: Insurance coverage levels vary significantly across the EU. According to EIOPA’s 2024 dashboard, countries like France and Denmark have residential flood insurance penetration rates of 75–100%, while Greece’s coverage is between 0–25%⁵. Additionally, several Member States—including France, Denmark, Italy, Romania, Belgium, Norway, and Spain—already operate national schemes. There is concern that a one-size-fits-all EU scheme could disrupt these systems, creating overlaps or inconsistencies in coverage, pricing, and claims handling. It is therefore essential that any EU-level scheme complements, rather than replaces the national systems—stepping in only when national capacity is exceeded.
• Climatic Diversity: The EU encompasses a wide range of climatic zones, from flood-prone Central Europe to wildfire-prone Mediterranean regions and earthquake-prone areas such as Italy and Greece. While this diversity enhances the potential for risk pooling, it also raises concerns about unequal benefits. For instance, countries like Denmark, which face minimal earthquake or flood risk and are lower risk than others for natural catastrophe events, may question the value of contributing to a scheme from which they may rarely benefit.
• Cross-Subsidisation: The diversity of risk and insurance coverage across Member States raises concerns about cross-subsidisation. The current proposal includes a risk-based contribution mechanism in which the cost to each (re)insurer or national scheme would be proportionate to their specific risk exposure. However, Member States may remain concerned that participation is not cost-effective for them. Alternative suggestions include a flexible integration pathways, allowing countries to opt in at different levels depending on their existing infrastructure and needs.
• Data Availability: Risk modelling capabilities vary widely across Member States. While some countries have advanced hazard mapping and loss modelling tools, others lack even basic exposure data. Without standardised methodologies, premium setting and risk pooling could be perceived as unfair. Stakeholders have called for the creation of a centralised EU risk observatory or data platform to ensure transparency, comparability, and evidence-based decision-making.
• Addressing Underlying Drivers: Some stakeholders have proposed alternative or complementary mechanisms, such as EU funding for risk mitigation, catastrophe forecasting, and inter-state coordination. These measures could strengthen national systems and reduce the need for large-scale post-disaster interventions. Whilst the current proposal would require Member States to have risk mitigation measures in place for access to the disaster relief fund, some stakeholders consider that concentrating focus on risk mitigation measures would be a better use of resources.

Success will depend on careful design and potentially flexible integration pathways for Member States. The EIOPA and ECB paper is ultimately a starting point for dialogue. The challenge lies in seeing whether it is possible to develop a solution that balances EU-wide solidarity with national autonomy, ensuring all Member States can contribute to and benefit from a more resilient insurance landscape.

Authored by Lydia Savill and Erin Davies.