The European Insurance and Occupational Pensions Authority (EIOPA) published today a report exploring to what extent and with what tools (re)insurers in Europe are already identifying, measuring and managing biodiversity risks. Despite the challenges in assessing biodiversity risks due to their complexity and their interconnectedness with other environmental risk factors, EIOPA’s report notes promising market practices among (re)insurers. At the same time, it points to areas where further engagement will be essential to strengthen the industry’s ability to respond to biodiversity-related risks going forward.
Biodiversity loss – understood as a reduction in the variety of all living and non-living elements that make up the natural world – is a multidimensional risk with significant macroeconomic implications that could undermine the stability of the financial system. Biodiversity-related risks are closely intertwined with climate-related risks (the so-called ‘climate-biodiversity nexus’), and the two can reinforce one another, particularly in the case of natural catastrophes. This close interconnection complicates both the identification of biodiversity risks and the assessment of their impact on economic activity.
Biodiversity is inextricably linked to the state of nature and there is broad consensus that nature provides a continuous flow of benefits to people — including materials such as food and water, processes such a pollination or climate regulation or recreational benefits drawn from green spaces or landscapes. Biodiversity ensures the ongoing provision of these so-called ‘ecosystem services’.
Estimates suggest that more than half of global GDP depends on these services, with sectors such as agriculture, construction and healthcare being especially exposed. Earlier research by EIOPA found that around 30% of insurers’ direct corporate bond and equity exposures rely on at least one ecosystem service. However, the direct and indirect physical, transition, and legal risks linked to biodiversity loss go beyond this. Without biodiversity, vital services that underpin our economies and societies may be at risk.
Initial engagement on biodiversity
It is in this context that EIOPA set out to explore how European (re)insurers are addressing biodiversity risks. EIOPA observed some promising practices on the market that reveal the insurance industry’s growing awareness of the potential implications of biodiversity loss – for the economy as a whole, as well as for certain lines of business and specific economic activities.
About one in every five undertaking mentions biodiversity in their Own Risk and Solvency Assessment (ORSA), although current assessments remain largely qualitative. Undertakings recognise biodiversity loss as a significant emerging risk but face challenges in quantifying its financial impact. Insurers are therefore still in the early stages of identifying, measuring and managing biodiversity loss, and primarily consider it from a reputational point of view.
The lack of global metrics, the regional specificities of biodiversity, and the difficulty of distinguishing biodiversity risks from climate change risks pose challenges to making actionable risk assessments today.
More collaboration needed
EIOPA strongly believes that the current limitations in quantifying and modelling biodiversity risks should not stand in the way of progress. To overcome these, EIOPA will further engage with stakeholders to:
- identify areas of action that should be prioritised, covering data availability issues, the development of models and scenarios and risk-based measures to manage biodiversity risk,
- better understand the interplay of biodiversity and climate risks, including the potential benefits of (nature-based) adaptation measures for addressing natural catastrophe insurance gaps,
- build capacity through a structured dialogue between supervisors and industry representatives.
Legal basis
Article 304(c)(3) of Directive EU 2025/2 mandates EIOPA to “[…] evaluate whether and to what extent insurance and reinsurance undertakings assess their material exposure to risk related to biodiversity loss as part of the assessment referred to in Article 45(1).”