Europe’s growing exposure to wildfires, floods and other extreme weather events is putting pressure on an insurance market that is increasingly reluctant to cover the places most at risk.
Now, a new report by financial watchdog Finance Watch is calling on the European Union to intervene, arguing that access to natural hazard insurance can no longer be left entirely to market forces.
The European Commission is itself expected to present its climate resilience framework this week, with leaked reports seen by en.philenews pointing to 27 October. The package is intended to strengthen the EU’s approach to preparing for climate risks, as pressure grows for action on the widening insurance protection gap.
The Commission has acknowledged the growing insurance protection gap, however, whether it will support the kind of binding obligations proposed by Finance Watch remains an open question.
When insurance disappears, the economic damage spreads
When insurers withdraw from areas exposed to repeated floods, wildfires or other natural hazards, households face the prospect of having to pay for reconstruction themselves. Businesses can struggle to protect their premises and operations, while banks may become more reluctant to lend against properties that cannot be adequately insured.
Finance Watch argues that this creates a damaging cycle: climate disasters increase losses, insurers restrict coverage, governments shoulder more of the financial burden, and fewer public resources remain available for prevention and adaptation. Without stronger action to reduce risks, future disasters could deepen the problem.
In her State of the Union address in September, von der Leyen said that only around 25 per cent of catastrophe losses in Europe were covered by private insurance, leaving national budgets to act as the insurer of last resort, illustrating how much of the financial damage from disasters remains outside private insurance.
What is Finance Watch proposing?
The report’s argues that the EU should treat natural hazard insurance as an essential service, rather than one that becomes unavailable whenever the commercial risks grow too high.
Finance Watch wants natural hazard insurance for primary residences and means of transport to be recognised as a service of general economic interest under EU law. The aim would be to establish a mandatory offer of affordable cover for residents across the bloc.
That would not necessarily mean every policy would cost the same, or that insurers would have to cover every possible loss without limits. The proposal is about ensuring that essential cover is offered, with affordability and the terms of protection addressed through a common regulatory framework.
The report also calls for harmonised rules governing national public-private insurance schemes, with mandatory participation by relevant insurers. Such arrangements would spread the financial burden of major disasters beyond individual insurance companies and provide additional protection when losses become too large for the private market to absorb alone.
A third proposal would introduce an EU-level public-private insurance scheme, building on earlier work by the European Insurance and Occupational Pensions Authority (EIOPA) and the European Stability Mechanism (ESM).
Together, these proposals would create a layered system for dealing with disaster losses.
The Commission’s next move
The timing puts the proposals squarely into the EU’s emerging climate resilience debate.
Von der Leyen announced the Climate Insurance Alliance in her State of the Union address, alongside plans for a European climate resilience framework that would identify 100 of the continent’s most vulnerable territories and assess the risks they face.
The Commission has presented the broader initiative as an effort to improve preparedness, close the insurance protection gap and reduce pressure on national budgets, which has been expected to surface in the second half of 2026.
But the announcement of an alliance does not, by itself, establish a European insurance pool, impose mandatory cover requirements or create a new capital buffer for insurers.
Finance Watch’s recommendations would take the debate further by seeking specific regulatory obligations and a formal mechanism for sharing losses between private insurers, national schemes and an EU-level arrangement, leading to binding legislation demanding an agreement on who participates, how the system is funded, what cover must be offered and when public resources can be used.
The question Brussels cannot avoid
There is no simple way to eliminate the financial cost of increasingly severe natural disasters. Expanding insurance coverage can help households and businesses recover, but it cannot substitute for reducing exposure to floods, wildfires and other hazards.
Nor does public-private risk sharing make losses disappear. It redistributes them, potentially bringing greater stability while creating new questions about the responsibilities of insurers, governments and policyholders.
Finance Watch’s argument is that leaving the current system unchanged risks allowing insurance to retreat from more parts of Europe, with consequences extending well beyond the insurance industry.
Its proposed response combines access to affordable cover, shared financial responsibility, stronger insurer capital and incentives to reduce climate risks.
The coming Commission framework will offer an indication of how Brussels intends to address the problem. The key question is whether the EU will focus on bringing stakeholders together and encouraging new insurance products, or whether it will also consider the binding obligations and public-private financial architecture that Finance Watch is calling for.
(Sources: European Commission, Finance Watch)
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