The European Insurance and Occupational Pensions Authority (EIOPA) is proposing an adjustment to the risk factor formula used by insurers in response to increasing natural disasters and extreme weather events.

It is aimed at ensuring the continued protection of policyholders and the overall stability of the EU’s insurance market. The Solvency II Review mandates EIOPA to reassess, and, in case of significant discrepancies, recalibrate natural catastrophe risk parameters at least every five years.

Natural disasters in Europe destroyed assets worth Euros 29.9 billion ($31 billion) last year, of which Euros 13.5 billion ($14 billion) were insured, according to a recent estimate by Munich Re, including floods in Spain, Germany and central Europe.

EIOPA is recommending the change to the way natural catastrophe risks are accounted for in insurers’ standard formula calibrations following a comprehensive reassessment exercise conducted in 2023 and 2024.

The proposed change uses new scientific insights, recent climate data and advanced risk modelling to adjust the  formula risk factors for perils like flood, hail, earthquake and windstorm for certain regions, while also expanding the number of countries considered.

EIOPA has reviewed the existing parameters and is now proposing new factors for 24 regions across natural hazards like floods, windstorms, hail, earthquakes and subsidence.

As a result, three countries’ flood risk factors have been recalibrated to better match the risks insurance companies with underwritten business in these regions face. Seven other countries, including Ireland, Luxembourg and Norway, are being proposed for inclusion in the standard formula for flood risk after their exposures were found to be material.

Several regions, including Iceland and some of France’s overseas territories, should see their risk factors for windstorm increased while the risk factors of countries like Germany, Belgium and Luxembourg should be increased for hail risk. Subsidence risk, or ground sinkage risk, should be raised for France while Belgium should also receive a risk factor in standard formula calibrations.

EIOPA is also closely monitoring data on emerging perils for a potential inclusion in the standard formula including natural hazards  such as wildfire, coastal flood and droughts.

The proposals have been submitted to the European Commission for a potential (re)calibration of the relevant standard formula parameters.

W Denis arrange specialist Natural Catastrophe Peril (including Flood) protection for organisations throughout Europe and the World. This includes both conventional (re)insurance as well as parametric solutions. For more information please contact:

Eastern Europe

Vida.Jarasiunaite@wdenis.eu

Southern Europe

Christos.Hadjisotiris@wdenis.com

Western Europe &/or elsewhere worldwide

Mark.Dutton@wdenis.com