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The EU should take urgent action to make insurers set aside more capital to account for the climate change risk of their fossil fuel assets, civil society organisations and experts demanded.
“The evidence is clear: fossil fuel investments are riskier than previously recognised. The failure to adequately capitalise insurers against these risks threatens the stability of the entire financial system,” a group of 22 organisations said in an open letter to the European Commission.
The European Insurance and Occupational Pensions Authority (EIOPA) recommended in November that fossil fuel stocks and bonds held on insurers’ balance sheets receive additional prudential treatment to accurately account for the higher risk of such assets.
The EIOPA report was the result of a mandate by the European Commission to assess the potential of dedicated prudential treatment for assets associated with environmental and social objectives or those that could harm those objectives.
EIOPA’s analysis found that fossil fuel stocks and bonds are more exposed to transition risks than other economic activities and present a financial risk. The regulator has proposed raising the capital requirements by 17% for stocks and 40% for bonds.
The civil society letter noted that the European Commission had failed to include a targeted review of Solvency 2 – the EU’s regulatory regime for the insurance sector – in its work programme for 2025, despite the warnings from EIOPA.
“Failing to act now leaves insurers, taxpayers, and the entire financial system exposed to mounting climate-related risks,” said Marika Carlucci, senior EU policy officer at ShareAction. “The European Commission cannot ignore the facts: fossil fuel investments are extremely risky and leave insurers dangerously vulnerable. Not addressing the clear evidence provided by EIOPA on these risks is not just disappointing – it’s reckless.”
The impact of climate change on insurance markets has been systematically underestimated, with implications for financial stability, said Professor Ilan Noy, chair in the economics of disasters and climate change at Te Herenga Waka, Victoria University of Wellington, in an article for Green Central Banking.
The letter noted that recent wildfires in the US had left entire regions uninsurable, while parts of Spain and France face spiralling premiums or withdrawal of coverage due to flood risks.
Although the EIOPA board of supervisors voted to support additional capital requirements, not everyone agreed. Some expressed concerns about the methodology and data used, while others raised worries about the potential for double counting and concerns that the costs for implementing the measures could outweigh the benefits.
“A lack of perfect visibility and predictability about the unfolding of climate-related risks does not constitute an excuse for inaction,” said Jérôme Crugnola-Humbert, a former sustainable finance policy expert with EIOPA, writing for Green Central Banking.
Julia Symon, head of research and advocacy at Finance Watch, said EIOPA’s policy recommendations were grounded in empirical evidence and the European Commission was obliged to act to protect financial stability. “Addressing climate risk is the only way to deliver a competitive and resilient insurance sector amid escalating climate losses.”
This page was last updated February 17, 2025
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Emma Thomasson is a British journalist, consultant and trainer based in Berlin. She is an expert in economics, politics, business and technology. She previously worked for Reuters as a correspondent and bureau chief in Germany, Switzerland, the Netherlands, South Africa and the UK.
