FERMA, the Federation of European Risk Management Associations has urged the European Commission to adopt a collaborative approach to the climate resilience framework it plans to introduce later this year, calling for the use of catastrophe bonds, insurance-linked securities (ILS) and parametric products.
The framework combines legislative and non-legislative measures and aims to establish a more comprehensive EU approach to climate resilience and preparedness, urging the adoption of a more collaborative model spanning governments, insurers, capital markets and businesses.
“Across Europe, climate change is driving rising losses and disruption through more frequent heatwaves, droughts, and heavy rainfall. Physical impacts and transition pressures from regulation, carbon pricing, energy costs, and market shifts have become material enterprise risks. At enterprise level, risk managers are on the frontline, playing a central role in anticipating natural hazards, strengthening resilience, and identifying emerging opportunities,” FERMA said.
Adding: “FERMA stresses, however, that climate-related risks cannot be managed by companies alone. While risk managers are already integrating these risks into enterprise risk management and business continuity planning, true resilience requires coordinated actions at EU, national, and local levels.”
In its recently published submission, FERMA has called on to the European Commission to consider exploring and streamlining new tools to attract prevention financing, such as catastrophe bonds, public-private partnerships and blended finance.
FEMRA notes in its submission that insurers in the Union can access new capital primarily by promoting ILS and scaling capital-market transfers. This includes tools such as catastrophe bonds, climate resilience bonds, sidecars, and collateralized reinsurance.
To reduce investor friction, FERMA advocates for EU-wide standards for data, triggers, and model governance. The organisation also notes that market appetite clearly exists, evidenced by several large EU insurers recently issuing catastrophe bonds.
To further mobilise private interest, FERMA recommends that the EU and its Member States focus on enhancing transparency. Standardising data and models regarding peril definitions and parametric protocols would make risks more comparable and due diligence more cost-effective.
Additionally, FERMA suggests utilising pooled issuance at both national and EU levels to improve diversification. Establishing harmonised special purpose vehicle (SPV) frameworks and standardised contracts will be essential to reducing structuring costs and providing legal clarity across jurisdictions.
To prevent climate insurance protection gaps from destabilising the macroeconomy, FERMA proposes scaling capacity through EU/national NATCAT pools. These would use layered reinsurance and ILS to reduce geographic and sector concentration risk.
The organisation also calls for the use of parametric covers to improve access to affordable insurance. These products should be based on climate risk assessments and historical event databases, utilising trends from observed events as inputs.
Parametric risk pools containing standardised triggers, using satellite and meteorological data, can facilitate faster payouts for response and continuity.
Laurent Nihoul, CEO of FERMA, commented: “Natural catastrophes are systemic risks that no single actor can absorb alone. As climate-related events grow in frequency and severity, effective Public-Private Partnerships are no longer optional. Governments, insurers, capital markets and businesses must work together to pool risk, share data and align incentives for prevention.”
Adding: “Innovative tools can stabilise insurance capacity, close protection gaps and, most importantly, reward resilience investments before disasters strike. A collaborative model is the only sustainable way to respond to NATCAT risks.”
FERMA added: “Investing in predictive modelling, digital twins, resilient infrastructure technologies, and innovative risk-transfer solutions can make European companies global leaders in resilience solutions. Achieving this requires stable regulations, clear policy signals, and scaled-up resilience finance.
“FERMA believes climate resilience must be a core pillar of Europe’s economic and social stability. A harmonised framework, strong governance, accessible data, and effective public-private risk-sharing are essential to ensure Europe is prepared for tomorrow’s climate.”
