LONDON, April 24 (Reuters) – Issuing “disaster bonds” and establishing public-private partnerships may assist plug the “insurance coverage hole” to raised cowl harm from local weather change, a dialogue paper from the European Central Financial institution and European Union insurance coverage regulators mentioned on Monday.
Solely 1 / 4 of EU climate-related disaster losses are insured, creating dangers to the economic system and monetary stability from uninsured households and companies not having the ability to recuperate rapidly from excessive occasions like fireplace or flood, the paper from the ECB and EU insurance coverage watchdog EIOPA mentioned.
With out motion, the insurance coverage hole may widen as extra frequent and intense occasions result in larger premiums, and affect 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 12 months.
Six consecutive years of above-average losses have pushed property disaster reinsurance costs up, with European charges growing by 30% on the January 2023 renewals, worldwide dealer Howden has mentioned.
“To be able to effectively shield our society, we have to handle the priority of the growing insurance coverage safety hole by proposing and discovering acceptable options,” EIOPA chairperson Petra Hielkema mentioned in an announcement.
Actions may embody incentivising individuals and companies to mitigate towards climate-related disasters by providing reductions on insurance policies, the paper mentioned.
Issuing disaster bonds may assist insurers move on a number of the danger to the capital market to maintain a lid on premiums, the paper mentioned. Taking motion would pace up pay-outs after disasters to keep away from a success the economic system.
Nationwide-level insurance coverage schemes is also complemented by an EU-wide public scheme that makes positive enough funds are made out there to European international locations for reconstruction following uncommon, large-scale climate-related catastrophes, the paper mentioned.
Responses to the paper will probably be mentioned at a workshop on Could 22.
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Reporting by Huw Jones
Modifying by Bernadette Baum
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