The European Insurance and Occupational Pensions Authority (EIOPA) is launching today a public consultation on reassessing natural catastrophe risks in the standard formula. EIOPA’s review of the parameters aims to better capture the risks stemming from perils such as earthquake, flood, hail and windstorm based on new insights, new data and new models that have come online since the last reassessment in 2018.
Natural catastrophes are becoming more frequent and more severe across Europe due to climate change. Against this development – and with a view to ensuring the continued protection of policyholders and the stability of the EU’s insurance market – it is important that insurers’ capital requirements for natural catastrophe underwriting risk continue to reflect the excepted impact of climate change.
EIOPA has therefore reviewed natural catastrophe parameters in the standard formula to see if previous parameters needed recalibrating in light of new evidence, but also to assess whether new perils or regions should be included.
As a result of the 2023/2024 (re)assessment exercise, EIOPA is proposing new risk factors for 25 perils/regions across five perils (flood, hail, earthquake, windstorm, subsidence). Flood risk, for instance, is to be (re)calibrated for 10 countries.
Additionally, EIOPA suggests including more countries in the standard formula for which certain natural catastrophe risks were previously not covered. Nine countries including the Netherlands, Ireland and Finland are slated to be added for flood risk.
Beyond the five perils already included in the standard formula, EIOPA is also monitoring emerging perils across Europe that could have a material impact on the region’s insurance sector. EIOPA is considering including wildfire, coastal flood and drought in the future as new perils to be covered under the standard formula.
Consultation process
Stakeholders are invited to provide their feedback to the proposals made in EIOPA’s Consultation Paper by responding to the questions via the online survey. The deadline for the submission of comments is 20th June 2024.
Background
The Solvency II Review mandates EIOPA to reassess, and, in case of significant discrepancies, recalibrate these parameters at least every five years. EIOPA therefore performs regular recalibrations of the standard formula’s natural catastrophe risk every five years to consider the latest data and scientific evidence.
This reassessment exercise is part of EIOPA’s broader work related to natural catastrophes, which, among others, includes the analysis of insurers’ exposure to physical climate change, the insurance protection gap dashboard for natural catastrophes and the analysis of insurance-based solutions for natural catastrophe protection gaps.