A new commentary from AM Best, published in May 2025, highlights both the promise and complexity of a proposed European Union-backed natural catastrophe reinsurance scheme aimed at narrowing the region’s widening protection gap.

In 2024 alone, Europe experienced over USD 33 billion in economic losses from natural catastrophes, yet insurance covered less than half. Amid rising climate-related risks, the European Central Bank (ECB) and EIOPA proposed a two-tiered solution: a public-private reinsurance pool funded by risk-based premiums and an EU disaster fund to support public infrastructure recovery—conditional on prior risk mitigation.

AM Best supports the initiative’s objectives, such as stabilizing premiums, enhancing risk mitigation, and improving claims capacity. However, it warns that the success of such a scheme depends on resolving crucial design elements, including pricing, regulatory oversight, and whether participation should be mandatory.

The report also examines national efforts already underway. France has imposed premium surcharges to stabilize its CCR-backed system. Italy has made catastrophe insurance compulsory for businesses, backed by state reinsurance via SACE. Spain’s government-run Consorcio continues to play a central role, with discussions underway to broaden its scope. In Germany, pressure is mounting to introduce mandatory hazard insurance, but implementation remains fragmented across federal states.

AM Best concludes that while the EU proposal is a step in the right direction, careful coordination with domestic frameworks and clear operational guidelines are essential to ensure its effectiveness.

Read here the full AM Best opinion document.