Photo by the European Parliament. © European Union 2023– Source: EP
Key points
-
The EU will create a climate insurance alliance to expand coverage for losses caused by extreme weather, European Commission president Ursula von der Leyen announced 16 September.
-
Only about 25% of natural catastrophe losses are currently covered by private insurance.
-
Experts warned that rising losses and insurance costs could increase financial instability and put pressure on public finances.
-
Critics said the alliance would not close the insurance protection gap without stronger action, including public-private schemes and natural-hazard cover.
-
The commission is also preparing a climate resilience framework, a European heatwave plan and a water initiative.
The European Union will create a climate insurance alliance to increase coverage for extreme weather events after the bloc’s extreme summer of drought, wildfires and heatwaves.
European Commission president Ursula von der Leyen made the announcement during her state of the union address on Wednesday, where she highlighted the need for Europe to “stay the course on its climate targets”, recognising that climate adaptation is not a future threat but an immediate economic and public policy issue.
Europe is one of the fastest warming continents from climate change.
Around 660,000 hectares burned, roughly 12mn tonnes of crops were lost and over 35,000 excess deaths were recorded in what von der Leyen called the “summer of truth”. But according to the EU, only around 25% of losses from natural catastrophes are covered by private insurance, which means that “national budgets become the insurer of last resort,” she said.
“We need to take action to close this gap. This is why the commission will set up a climate insurance alliance,” von der Leyen said.
Expanding European insurance coverage
The aim of the alliance is to increase insurance, promote risk prevention instruments and ensure insurance schemes are adequate. It will be composed of insurers, experts, investors and regulators, Bloomberg reported.
The announcement shows that climate and insurance are a genuine top priority for the EU Commission, Petra Hielkema, chair of the European Insurance & Occupational Pensions Authority (EIOPA), said during a panel at the UNEP Global Sustainable Insurance Summit in Dublin.
“This is no longer just triggered by the department that is responsible for insurance”, but there is a “clear role for coordination” as “everyone in the ecosystem realises we need to do something”, she said.
Now is the time for action despite the political environment, she added, alluding to pushback from the US Trump administration on climate change issues.
“We’re dealing with risks; we’re not doing politics,” she said.
Experts have warned that the EU faces a widening insurance gap which could have a wider systemic impact.
The European Central Bank (ECB) warned in its 2025 financial stability report that the insurance gap could widen as policy prices increase from rising losses, which could in turn erode insurance underwriting. A separate report cautioned that climate change and nature loss could also threaten public finance budgets as insurance markets struggle to absorb increasing costs from global disasters.
Need for innovation and action
Climate change is one of the most pressing risks that society is facing today, said Seána Cunningham, director of insurance at the Central Bank of Ireland at the UNEP Global Sustainable Insurance Summit.
“The physical risks reshaping our climate are not distant concerns; they are present-day challenges demanding urgent action from regulators, insurers and policymakers alike.”
Insurance availability is a key concern for the Irish central bank, she added, as there are clear consequences when insurers retreat from markets, including reduced investments, lower property values and financial instability risk.
“The answer is not simply to force insurers to cover uneconomic risks that would not be sustainable. Rather, we need innovative solutions that deliver long-term sustainable results,” she said.
Still, the EU has been slow to prepare for global warming. Critics say its simplification process has undermined the efforts it made in the past decade towards greening the EU economy. In the past year, the EU has exempted 90% of companies from its mandatory emissions reporting directives; weakened its zero-emission targets for new cars; postponed its deforestation regulation; and delayed the full launch of its emissions trading system.
Paul Fox, senior research and advocacy officer at climate NGO Finance Watch, said it was unclear what the climate alliance would look like, and that a forum would not close the insurance protection gap.
“Action starts with what’s already on the table,” he said, noting that the ECB and EIOPA have already proposed a national European system that would include an EU reinsurance pool and public disaster financing.
Fox urged the EU to go further and require insurers to participate in public-private schemes and offer natural-hazard cover.
“Member state budgets are already straining to rebuild after this summer, and existing solutions to protect them against future costs should be implemented with urgency. Once its parameters are clearly defined, the climate insurance alliance can help identify and close gaps that remain,” he said.
Climate resilience
The commission is also planning to present its new framework for climate resilience on 28 October, which will look at the 100 most vulnerable areas in Europe and assess the risks and how they should be managed, von der Leyen announced during her speech on Wednesday.
This “whole of society” approach aims to make Europe a leader in adaptation technologies.
“Whether drought-resistant crops, flood prevention or energy-efficient cooling, Europe is already a leader. And we must capture this market,” she said.
The EU is also planning to present a European heatwave plan, which will include early warning systems, health preparedness and urban adaptation and cooling. Von der Leyen also announced a new European water initiative to combat waste, as some of Europe’s vital rivers, such as the Danube and the Garonne, are disappearing.
In addition, she announced a European coorporation on critical raw materials to stockpile the supplies needed for a clean transition and defence. She also pledged to move the bloc’s dependence on fossil fuels to clean energy, which has increased costs for Europe since the start of the US-Israel war on Iran.
“We need to double down on our affordable and homegrown clean energy, be it renewables and nuclear,” von der Leyen said.
This page was last updated October 7, 2026
Written by
Moriah Costa is the Editor-in-Chief of Green Central Banking and has over a decade of experience writing about banking and finance. She is an award-winning American journalist based in Paris and has written for major international publications, including Reuters, The Guardian, and S&P Global. Having grown up in water-stressed Arizona, she has always had a strong interest in bringing awareness to climate and environmental issues.
