FERMA has submitted its response to the European Commission call for evidence on climate resilience and risk management.

As the voice of European risk managers, FERMA possesses a key expertise when it comes to identifying, mapping and mitigating all risks that companies may face. This encompasses risks related to natural catastrophes (NATCAT) as Europe is facing substantial losses, destruction and costs from climate-related impacts and risks, including more frequent and intense heatwaves, droughts and heavy rainfall events. At enterprise-level, Risk Managers are vital to strategically assessing the risks and opportunities in their operations across the value chain. Risk Managers also help manage the physical risks related to climate change, including the increased frequency and severity of natural hazards.

NATCAT are a “systemic risk”, since they have the potential to break down of a system as a whole, rather than any of its individual constituent parts. Due to their large-scale effects, the private insurance market alone is unable to provide sufficient insurance capacity for the transfer of such a systemic risk – although it is able to provide targeted coverage for disruptions resulting from limited catastrophe (such as floods or fires). Consequently, the private insurance market needs to be supported by appropriate policies to tackle efficiently climate resilience challenges.

Based on its several reports and position papers, FERMA wishes to answer to this call for evidence by stressing the following elements:

• There is currently a market failure regarding the insurance coverage of climate risks, linked with inadequate risk assessments and increasing protection gaps. This is a very concerning state of play as NATCAT are a “systemic risk”.
• Several challenges persist, such as the lack of reliable data, the need to spread good climate risk management practices and a variety of uncoordinated solutions between EU member states.
• Therefore, FERMA suggests concrete recommendations, such as granting better access to reliable data, enhancing and developing good risk management practices (both at EU and company-level), implementing innovative tools such as an EU-wide NATCAT public-private reinsurance scheme as suggested by the ECB and EIOPA.

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