Climate Adaptation & Insurance

The Commission has proposed setting aside funding to encourage Member States to adopt climate adaptation strategies and has launched a consultation on ways of improving disaster insurance coverage across Europe.

It would also like to further develop the European climate adaptation platform, in order to provide adaptation information in Europe.

These are some of the key objectives of a new Commission package of measures designed to advance responses to climate change.

The package consists of two parts: 
• An EU strategy paper on adaptation to climate change which sets out a framework and mechanisms for taking the EU's preparedness for current and future climate impacts to a new level
• A Green Paper on insurance in the context of natural and man-made disasters that launches a public consultation on the adequacy and availability of existing insurance options

Climate Change Adaptation Strategy

The Commission strategy aims to enhance preparedness and capacity to respond to the impacts of climate change at local, regional, national and EU levels. It also aims to make key economic and policy sectors more resilient to the effects of climate change.

Promoting Member State Action

The EU will provide financial support for adaptation strategies through the LIFE programme. The Commission will also define strategic goals and thematic priorities and support the exchange of good practices.

Better Informed Decision-Making

Substantial knowledge gaps need to be filled (for example on information on damage and adaptation costs and benefits, and on monitoring and evaluating adaptation efforts). The Commission will work with Member States and stakeholders in refining these knowledge gaps. It will also work in improving access to information.

Key Vulnerable Sectors

The Commission considers it a priority to introduce adaptation measures into EU policies and programmes. That has already been done in certain sectors as forestry and transport. Guidance will be provided on how to further integrate adaptation. This will be pursued in priority fields such as energy and transport.

Coordination, Financing and Evaluation

The Commission will seek to cooperate with Member States through the existing Climate Change Committee. Member States will also appoint national contact points by the end of 2013, to coordinate communication between their countries and the Commission.

The draft 2014-2020 Multi-annual Financial Framework (MFF) includes a proposal for increasing climate-related expenditure. Specifically, the Commission has included climate change adaptation in its proposals for all relevant EU finance programmes for 2014-2020.

Disaster Insurance

The Green Paper  on disaster insurance contains a public consultation, which poses a number of questions concerning the adequacy and availability of appropriate disaster insurance. The objective is to raise awareness and to assess whether or not action at EU level could be appropriate to improve the market for disaster insurance in the EU.

Market Penetration

There is currently a low market penetration rate of disaster insurance in certain Member States.

The Commission is asking for feedback on this issue. It wants to know if more research is needed to understand any possible gaps in insurance supply and demand.

Product Bundling

To handle risks, one of the most common techniques is the bundling together of several types of uncorrelated perils into a single insurance policy, for example, fire and flood, storm and earthquake.

The Commission is considering the possibility of requiring mandatory product bundling to increase insurance cover against disaster risks.

Compulsory Disaster Insurance

Consumers may not be inclined to insure themselves against risks that are unlikely to individually impact on them. Also, people underestimate the real risk of a disaster to them, and rely on social networks and government relief.

If just the highly exposed purchase insurance, the premium will be prohibitively expensive, and the pool will be too small to cope with disasters. In order to overcome this, the Commission is considering the possibility of requiring compulsory disaster insurances. It is asking for feedback from Member States on this matter.

Governments as (re-)Insurers

The Commission wants to know how to design state or state-mandated disaster (re-)insurance programmes to prevent the problem of moral hazard (policy-holders behaving in riskier ways once they know that they will be covered).

The Commission is also asking whether deductibles or excesses (which oblige insured parties to cover a portion of the loss themselves) and other exclusions effectively prevent moral hazard.

Weather Insurance

Under a parametric index-based insurance scheme, losses resulting from extreme weather-related events are compensated when a pre-defined weather index deviates from the historic average, irrespective of the actual loss.

Parametric insurance can improve affordability of insurance by reducing administrative costs, as well as speeds up pay-outs. In order to use parametric design, meteorological research needs to identify viable indexes, and in order to do so there is a need of a systematic coverage of the territory with weather stations sufficiently close to insured persons and risk zones mapped.

The Commission is considering the use of parametric insurances, and wants to know about the difficulties or limitations in using information to generate them.

Market-Based Incentives

Insurers can provide market-based incentives for risk prevention. Risk-based pricing can motivate insured persons to take individual measures to reduce the vulnerability of their property.

The Commission wants to know about the possibility of establishing flat-rate premiums for specific disasters. It asks for feedback on other solutions to offer low-income consumers who might be excluded from disaster insurance products.

Long-Term Disaster Insurance Contracts

Natural disaster risks are, in principle, covered by annual contracts. Long-term insurance contracts with transparent risk-based pricing and premium discounts for risk reduction could strengthen economic incentives.

The Commission is interested in promoting long-term disaster contracts, and is asking for feedback on the advantages and drawbacks.

Contractual Information Requirements

In the non-life insurance sector, information requirements vary greatly. The Commission wants to increase consumer confidence by providing clear rules and eliminating legal uncertainties.

The Commission is considering the harmonisation of pre-contractual and contractual information requirements at EU level, and is asking for feedback on this, and on the requirements concerning the commitment that should be included.

Data, Research and Information

The general ambiguity of data is a hurdle to the further development of disaster insurance. 

The Commission wants to improve data, and wants to know how to encourage better sharing of data, risk analysis and risk modelling methods.

Environmental Liability

The Environmental Liability Directive encourages but does not oblige industrial operators to hold appropriate financial security in order to remedy environmental damage as the result of their activities. However, the Directive does not cover environmental damage caused by "a natural phenomenon of exceptional, inevitable and irresistible character." Nor does the Directive cover damage to the environment caused by a prescribed action with the aim of protecting against a natural disaster. The Commission wants feedback on possible amendments to the Directive.

Third-Party Nuclear and Offshore Liability Insurance

There are currently many different rules on nuclear third-party liability within the EU. The Commission has recently suggested taking a European approach on nuclear liability regimes, and will launch a public consultation shortly.

The Commission is also asking about the kind of insurance mechanisms that could be appropriate for offshore oil and gas industry and the type of information that should be publicly available to promote the development of insurance market products to cover major accidents.

Information Rights of Victims of Man-Made Disasters

The Commission is considering the possibility of making contractual conditions of third-party liability insurance policies disclosed to third parties in case of man-made disasters; in order to allow the injured party to make a direct claim against the insurer, instead of, as ordinarily, make the injured third party contact the liable party.

Next Steps

The Communication setting out the adaptation strategy is addressed to the other EU institutions for their responses.

The public consultation contained in the Green Paper is open until 30 June 2013. Once the Commission has examined the responses received, it will decide on the most appropriate follow-up, which could take several forms, legislative and non-legislative.