Climate-induced insurance losses may have far-reaching effects on the broader economy, the European Central Bank asserts.

The European Central Bank (ECB) has issued a warning about the increasing risk of climate change to insurance firms, highlighting the widening insurance protection gap as a systemic risk.

In 2024, natural disasters resulted in €30bn in economic losses, of which only €13bn was insured. This historical trend of most economic losses in the euro area remaining uninsured has raised concerns among financial experts.

Fiona Hauke, a researcher at Urgewald, emphasizes the need for action beyond acknowledging the systemic risk. She suggests that the ECB could introduce a green interest rate or integrate climate change in its monetary operations to help reduce the insurance protection gap.

Julia Symon, head of research and advocacy at Finance Watch, finds the increased focus on climate risks in the ECB's financial stability reports to be a "worrying trend". She urges that as the EU debates rolling back its sustainable finance framework, the ECB report serves as a warning about the accelerating climate risks.

Marika Carlucci, senior EU policy officer at ShareAction, expressed disappointment that the report only focused on physical risks and not the transition to a green economy. She believes that the ECB should also address the challenges posed by the shift towards a sustainable economy.

In November, the European Insurance and Occupational Pensions Authority (EIOPA) recommended that insurers set aside more capital for fossil fuel investments. The ECB's review reveals that the impact of climate change on other sectors of the financial system is likely to be higher.

The ECB has recommended enhancing climate risk disclosures, promoting green finance, and strengthening the resilience of the financial system to reduce the insurance protection gap caused by climate change. Hauke expresses disappointment that the ECB remains overly focused on perfecting its risk assessments, and urges action beyond that.

Symon urges that the ECB's recommendations should be implemented promptly, as the insurance protection gap could widen further due to rising insured losses, making coverage unaffordable and eroding insurance underwriting. She warns that this could lead to repricing in areas prone to extreme weather events from climate change.

The page was last updated on June 9, 2025. The ECB emphasized the importance of taking policy action to reduce the insurance protection gap and build resilience in the face of climate-related risks. Insurers have a critical role to play in this effort, as they can help reduce the impact of extreme weather events on the economy.

In conclusion, the ECB's warning about the insurance protection gap highlights the urgent need for action to address the risks posed by climate change. The ECB's recommendations provide a roadmap for insurers, policymakers, and regulators to work together to build a more resilient financial system that can withstand the challenges of a changing climate.

Climate-induced insurance losses may have far-reaching effects on the broader economy, the European Central Bank asserts.