The European Insurance and Occupational Pensions Authority (EIOPA) published today a Staff Paper exploring the reasons for the limited uptake of natural catastrophe (NatCat) insurance in Europe. Building on studies carried out by EIOPA, the Paper explores so-called ‘demand-side’ barriers that can prevent consumers from buying NatCat insurance. It further proposes possible consumer-tested solutions to overcome these barriers. Today’s publication is the latest in a series of EIOPA initiatives aimed at improving society’s resilience against natural catastrophes.
The use of NatCat insurance in Europe remains low with only around a quarter of all losses covered. This means households and business are not as resilient in the face of natural disasters as they could be. EIOPA has therefore expanded its focus following earlier work on supple-side constraints to find out why consumers do not purchase NatCat insurance products even when these are available.
“European citizens and firms are clearly underinsured against a range of hazards including floods, wildfires and windstorms. As weather events related to climate change grow more severe and more frequent across our continent, we must understand why protection gaps exist – including consumer behaviours – and take necessary actions to tackle them the best we can. Our society’s future ability to recover and rebuild from devastating events is at stake here,” EIOPA Chair Petra Hielkema said.
Having analysed supply-side factors (see Insurance Protection Gap Dashboard, Impact Underwriting and Supervisory Statement on Exclusions), EIOPA has now sought to shed light on why consumers can be reluctant to consider existing insurance options, and to identify solutions that could lead to an increased uptake of NatCat insurance.
The work, which draws on consumer research and behavioural studies carried out by EIOPA, has revealed several demand-side barriers and drivers that impact the willingness of people and businesses to buy NatCat insurance. These include:
- income levels and the perceived unaffordability of coverage (consumers tend to mistakenly perceive insurance as too expensive),
- a lack of clarity in terms and conditions,
- previous negative experiences with insurance claims,
- the misperception of the risks of a NatCat event
- high expectations about state intervention in case of a catastrophe, and
- the perception that the process of buying insurance is demanding.
EIOPA has identified a number of potential solutions to tackle these barriers:
- increasing risk awareness, for instance through public or independent tools monitoring the level of risk in regions as well as with targeted messages at ‘teachable moments’ (e.g. prior to buying property),
- better comparison and greater standardization of products regarding coverage, exclusions and pricing structures,
- simpler and more consumer-friendly purchasing processes, including via digital channels, and
- premium reductions for implementing risk mitigation measures.
Next steps
EIOPA welcomes feedback from stakeholders on the key risks for consumers, the identified drivers and possible solutions. Comments should be submitted via EUSurvey no later than 05 October 2023.
Based on the feedback received, EIOPA may issue feedback and will consider which of the measures could be most effective in improving consumer resilience in the face of NatCat events, including via further work with stakeholders in this area.