Adaptation finance in the EU: what role for insurers and other private financial institutions?
The President of the European Commission, Ursula von der Leyen, has committed to presenting a European Climate Adaptation Plan in 2026. The European Commission has previously emphasised public budgets as the main source of coverage for climate-related disasters. But if both the EU’s and member states’ budgets are strained by competing investment priorities and high debt levels in some cases, what are the complementary avenues for financing adaptation in the EU? How can private financial actors, such as banks, insurance companies or asset management firms, support adaptation efforts, not only to ensure resilience (i.e. recovery) from climate disasters, but also to prevent impacts before they arrive?
At the European level, important steps have already been taken over the past years, questioning the role of insurance companies. The starting point is the observation of an “EU climate protection gap”. The supervisor of insurers (EIOPA) highlights that, in the past, only 25% of the total losses caused by extreme weather and climate-related events across Europe have been insured. Research shows that reducing this EU climate protection gap, and thus alleviating the pressure on public budgets, would require clarifying the responsibilities of governments and private actors on adaptation, including the relevant share of efforts for prevention and resilience. For instance, insurance companies could – under certain circumstances – stimulate and support their clients in bearing investments to protect their insured homes against floods. This implies also taking account of initial risks, as well as the societal and policy contexts in each country.
As part of the several EU initiatives addressing the EU protection gap, in December 2024, the European Central Bank and EIOPA proposed a 2-pillar mechanism to reduce the impact of climate disasters. This includes an EU reinsurance scheme for private losses and an EU fund for the reconstruction of public infrastructure, both conditional on prevention measures. Complementing these reflections, our new report “The adaptation of real estate: what roles can the financial sector play?” sets the baseline for considering the role of insurance, banks and asset management firms in financing the adaptation efforts. Focusing on adaptation needs of the real estate sector and highlighting the specificities of the French context, the report analyses the current state of play and what roles they can play alongside other stakeholders going forward. As financing climate adaptation moves up the political agenda in the EU, the mobilisation of banks and other financial institutions will require due consideration. This report offers the basis to do so.
