FERMA backs European nat cat mitigation scheme
FERMA has announced its support for the joint proposal by the European Insurance and Occupational Pensions Authority (EIOPA) and the European Central Bank (ECB) to establish a European public-private reinsurance scheme aimed at mitigating the impact of natural catastrophes. While backing the initiative, FERMA also outlined several key considerations to help facilitate to the success of the initiative.
The EIOPA and ECB joint paper, ‘Towards a European System for Natural Catastrophe Risk Management’, proposes a two-pillar EU-level solution designed to help close the widening insurance protection gap for natural catastrophe risks. At its core, it includes the creation of a public-private EU reinsurance scheme to reduce economic exposure to the increasing frequency and severity of such events.
The recently published European Preparedness Union Strategy (EPUS) by the European Commission also stressed the need for the development of the reinsurance mechanism proposed by EIOPA and ECB.
The proposed scheme would be funded through risk-based premiums paid by re/insurers or national insurance systems. FERMA said that it fully supports this model, stating that risk-based pricing enhances risk awareness, encourages preventative measures, and reinforces best practices already implemented by private (re)insurers and their corporate clients.
FERMA also believes that the creation of a dedicated EU-wide reinsurance pool would allow Europe to regain pricing sovereignty, reduce price volatility, and foster greater stability in insurance costs, benefiting businesses, insurers, and consumers alike.
In supporting the initiative, FERMA emphasises some critical areas that should be considered for the scheme to succeed:
• Data Reliability and Consistency: Reliable, consistent data is vital for accurate risk assessment, fair premium setting, and effective claims processing. FERMA highlights the current disparity in national data collection practices and urges regulators to define the data to be collected, standardise methodologies, and establish robust governance systems.
• Managing Premium Pricing: A diverse and sufficiently large EU pool is essential to avoid disproportionately high premiums. FERMA recommends further studies to determine the optimal scale for risk diversification and pricing stability. It also advocates for a framework that ensures meaningful private sector participation and a minimum participation threshold.
• Clear Regulatory Framework: A stable, well-defined legal framework is needed to provide certainty around contractual obligations, claims processing, and dispute resolution. However, FERMA also warns that care must be taken to avoid introducing unnecessary costs or administrative burdens.
To ensure the scheme’s long-term viability and private sector engagement, FERMA draws attention to the volatility created by annual insurance renewals. It suggests integrating mechanisms that assess returns over multi-year periods to promote market stability.
FERMA also calls for a structured, continuous consultation process involving policymakers, (re)insurers, and risk managers throughout the initiative’s development. Moreover, the scheme’s governance structure should clearly delineate roles and responsibilities among EU entities, national schemes, and private sector participants to prevent unintended competition.
Finally, FERMA urges that the reinsurance scheme be leveraged to incentivise and finance risk prevention and mitigation efforts, in order to ensure sustainable, long-term funding for natural catastrophe damage compensation.
Commenting on the Position Paper, Charlotte Hedemark, president of FERMA, said: “FERMA welcomes the proposed EU public-private reinsurance scheme as a vital step in addressing the growing natural catastrophe protection gap. Its success, however, will depend on close collaboration among stakeholders, consistent data practices, and clear legal and operational structures. FERMA is committed to playing a constructive role throughout the development and implementation of this critical initiative for Europe’s resilience and competitiveness.”
Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.
