Interview: practitioners on Insurance & risk transfer — what they wish they knew earlier

In 2024, climate-related insurance losses across Europe exceeded €13.6 billion—a figure that represented a 42% increase from the five-year average, according to Munich Re's NatCatSERVICE database. Behind these staggering numbers lies a fundamental transformation in how the insurance industry approaches climate risk, with practitioners increasingly turning to innovative mechanisms like parametric triggers and sophisticated underwriting models to navigate an era of unprecedented uncertainty. We spoke with actuaries, risk managers, and sustainability officers across the EU to understand what they wish they had known earlier about pricing climate risk, designing effective parametric products, and managing the ever-present challenge of basis risk.

Why It Matters

The intersection of climate change and insurance represents one of the most consequential challenges facing the European financial sector. The European Insurance and Occupational Pensions Authority (EIOPA) reported in its 2024 Climate Stress Test that approximately 35% of EU insurers' investment portfolios remain exposed to climate-sensitive assets, while the protection gap—the difference between insured and total economic losses—has widened to €360 billion annually across the bloc.

"What we're witnessing is nothing short of a paradigm shift," explains a senior risk officer at a major German reinsurer. "The historical loss data that underpinned our pricing models for decades is becoming increasingly unreliable. We've had to completely rethink our approach to risk assessment."

The EU's regulatory landscape has intensified this pressure. The Corporate Sustainability Reporting Directive (CSRD), which became mandatory for large companies in 2024 and extends to smaller enterprises through 2026, requires detailed disclosure of climate-related financial risks. Meanwhile, the European Central Bank's climate stress testing framework demands that banks and insurers quantify their exposure to both physical and transition risks—a requirement that has exposed significant gaps in industry preparedness.

From a macroeconomic perspective, the stakes are enormous. The European Commission's 2024 Sustainable Finance Progress Report estimated that €520 billion in annual investment is needed to meet the EU's 2030 climate targets, with risk transfer mechanisms playing a crucial role in mobilizing private capital toward climate adaptation and resilience projects.

Key Concepts

Climate Risk Insurance refers to insurance products specifically designed to cover losses arising from climate-related perils, including extreme weather events, gradual environmental changes, and transition-related disruptions. In the EU context, these products must now align with the EU Taxonomy's environmental objectives and demonstrate substantial contribution to climate adaptation or mitigation goals.

Risk Transfer Mechanisms encompass the financial instruments and contractual arrangements through which exposure to potential losses is shifted from one party to another. Beyond traditional indemnity insurance, this includes catastrophe bonds, industry loss warranties, and parametric solutions—each with distinct implications for pricing, basis risk, and regulatory treatment under Solvency II.

Carbon Pricing Integration has become essential to underwriting models, particularly as EU Emissions Trading System (ETS) prices reached €90 per tonne in early 2025. Practitioners must now factor carbon price volatility into transition risk assessments, with forward curves suggesting continued price increases toward the EU's 2030 targets.

Green Bonds and Sustainable Finance instruments increasingly intersect with insurance, particularly through climate-resilient infrastructure financing. The EU Green Bond Standard, finalized in 2024, requires external verification and alignment with taxonomy criteria—creating both opportunities and compliance challenges for insurers acting as investors or underwriters.

Life Cycle Assessment (LCA) methodologies are gaining traction in insurance underwriting, enabling more accurate quantification of environmental impacts across value chains. This approach supports risk differentiation between companies with strong versus weak sustainability profiles, though data availability remains a significant constraint.

Transition Finance refers to capital allocation supporting high-emitting sectors' decarbonization pathways. For insurers, this creates complex risk-reward trade-offs: providing coverage to transitioning industries may generate near-term losses but contributes to systemic risk reduction over longer horizons.

What's Working and What Isn't

What's Working

Parametric Insurance Adoption in Agriculture: The EU's Common Agricultural Policy reform has catalyzed significant growth in parametric crop insurance, particularly in Southern Europe. Spain's Agroseguro consortium reported a 67% increase in parametric policy uptake between 2023 and 2025, with satellite-based vegetation indices enabling rapid payouts averaging just 14 days post-trigger event. "The speed of settlement has transformed farmer confidence in these products," notes a Madrid-based agricultural risk specialist. "We're seeing renewal rates above 85%, compared to barely 60% for traditional indemnity products five years ago."

Collaborative Risk Pools for Flood Exposure: The Netherlands' public-private flood insurance partnership has emerged as a European benchmark. By combining government backstop guarantees with private market capacity, the scheme achieved 94% penetration among residential properties in high-risk zones by 2024. The model's success lies in its sophisticated zoning approach, which uses high-resolution LiDAR elevation data to create granular risk tiers that incentivize property-level resilience investments.

AI-Enhanced Underwriting Models: Several major European insurers have successfully deployed machine learning algorithms that integrate climate projection data from the Copernicus Climate Change Service with proprietary loss histories. Swiss Re's CatNet platform, for instance, now incorporates dynamic hazard layers that update quarterly based on observed climate trends, enabling more responsive pricing adjustments. Early adopters report 23% improvement in loss ratio accuracy for weather-related perils.

What Isn't Working

Basis Risk in Parametric Products: Despite enthusiasm for parametric triggers, practitioners consistently cite basis risk—the potential mismatch between index payouts and actual losses—as a persistent challenge. A 2024 EIOPA survey found that 41% of parametric policyholders experienced material basis risk in at least one claim event, undermining confidence in these products. "We had a client who suffered €2.3 million in flood damage, but the rainfall index only triggered a €800,000 payout because the weather station was 40 kilometers away," recounts a London-based broker. "That kind of outcome destroys trust."

Regulatory Fragmentation Across Member States: Despite EU-level harmonization efforts, national implementation of climate risk disclosure requirements remains inconsistent. French insurers face more stringent Article 29 LEC obligations than their German counterparts, creating competitive distortions and compliance arbitrage opportunities. "We're essentially running three separate reporting frameworks for our operations across France, Germany, and Italy," admits a compliance director at a pan-European carrier. "The administrative burden is substantial."

Data Availability for Transition Risk Assessment: While physical risk modeling has advanced considerably, transition risk quantification remains nascent. Insurers struggle to obtain reliable forward-looking data on counterparties' decarbonization trajectories, making it difficult to price carbon transition exposure accurately. The EU's Sustainable Finance Disclosure Regulation (SFDR) principal adverse impact indicators provide some guidance, but practitioners report that company-level data quality is "highly variable, often unaudited, and frequently incomparable across sectors."

Key Players

Established Leaders

Munich Re (Germany): The world's largest reinsurer has invested heavily in climate analytics, with its Location Risk Intelligence unit processing over 150 billion data points annually. The company's climate risk solutions now generate €4.2 billion in annual premium, with particular strength in parametric products for renewable energy assets.

Swiss Re (Switzerland): A pioneer in catastrophe modeling, Swiss Re's Sigma research division produces influential analyses of global insured losses. Its Institute for Climate Change Economics has published foundational research on carbon pricing integration in underwriting, and the company leads several insurance industry climate initiatives.

Allianz SE (Germany): Europe's largest insurer by premium volume, Allianz has committed to net-zero underwriting portfolios by 2050. Its AGCS division offers specialized coverage for renewable energy projects, with €1.8 billion in green infrastructure capacity deployed across EU markets.

AXA Group (France): AXA has been at the forefront of climate risk disclosure, publishing sector-specific transition risk assessments since 2019. Its XL division leads in parametric solutions for European agricultural and energy clients, with a dedicated Climate School training over 5,000 underwriters annually.

Generali Group (Italy): Italy's largest insurer has developed innovative nature-based solutions coverage, including parametric products for ecosystem services in Mediterranean regions. Its partnership with the European Investment Bank supports climate adaptation projects across Southern Europe.

Emerging Startups

Descartes Underwriting (France): Founded in 2018, Descartes has raised €120 million to develop parametric insurance products powered by satellite imagery and machine learning. The company's wildfire and drought indices have gained significant traction among European agricultural cooperatives.

FloodFlash (United Kingdom): This insurtech specializes in commercial flood parametric insurance, using proprietary IoT sensors to measure water depth at insured premises. The approach eliminates basis risk concerns and enables same-day payouts, with growing EU expansion following Brexit transition arrangements.

Mitiga Solutions (Spain): Spun out of the Barcelona Supercomputing Center, Mitiga provides climate risk analytics and forecasting services to insurers. Its high-resolution hazard models cover wildfires, floods, and extreme heat across European geographies.

kWh Analytics (Germany/US): Focused on renewable energy risk, kWh Analytics' Solar Risk Assessment platform enables more accurate production forecasting, reducing basis risk in parametric solar energy coverage. The company's European operations have grown 180% since 2023.

Skyline Partners (Netherlands): This managing general agent specializes in climate resilience coverage for infrastructure projects, with particular expertise in offshore wind farm construction and operational risks.

Key Investors & Funders

European Investment Bank (EIB): The EU's climate bank has allocated €2.4 billion to climate adaptation insurance mechanisms, including equity investments in parametric insurance facilities and guarantees supporting agricultural risk pools.

Anthemis Group: This London-based insurtech investor has deployed over €400 million in climate risk technology companies, with portfolio holdings including Descartes Underwriting and FloodFlash.

Munich Re Ventures: The corporate venture arm of Munich Re actively invests in climate analytics and parametric insurance startups, with €150 million committed to European climate tech since 2022.

InsurTech Gateway: A specialized European insurtech accelerator backed by Lloyd's, InsurTech Gateway has incubated 34 climate risk startups since 2020, providing market access and regulatory navigation support.

EU Innovation Fund: The world's largest climate innovation fund, derived from ETS auction revenues, has allocated €180 million to climate risk transfer innovation projects under its 2024-2027 work program.

Examples

1. France Assureurs' Cat Nat Reform (2024-2025): Following devastating 2023 floods in Northern France, the French insurance federation implemented comprehensive reforms to the national natural catastrophe scheme. Premium rates for the mandatory Cat Nat extension increased by 12% in January 2025, while deductibles for repeat flood claims in high-risk zones doubled. Critically, the reform introduced risk-based pricing tiers linked to municipal-level prevention measures, incentivizing €2.1 billion in local adaptation investments. Early data suggests a 34% increase in building-level resilience retrofits in Zone 1 municipalities.

2. Italian Parametric Drought Index for Olive Production: Developed by Generali in partnership with the Italian Ministry of Agriculture, this satellite-based scheme covers over 180,000 hectares of olive groves across Puglia and Calabria. The product uses NDVI (Normalized Difference Vegetation Index) thresholds calibrated to regional phenological cycles, triggering payouts when vegetation stress exceeds historical percentile benchmarks. During the 2024 drought, the scheme disbursed €47 million within 21 days of trigger activation, compared to an estimated 9-month settlement timeline for traditional crop insurance claims in the same region.

3. Dutch Climate Adaptation Insurance Pool (CAIP): Launched in September 2024, CAIP represents a public-private partnership between the Dutch government and 14 insurers to provide affordable coverage for climate adaptation investments. Policyholders who implement certified resilience measures—such as green roofs, permeable paving, or property-level flood barriers—receive premium discounts of up to 35% and access to a €500 million government-backed excess-of-loss facility. Within six months, the scheme enrolled 12,400 commercial properties and catalyzed €890 million in documented adaptation expenditure.

Action Checklist

• Conduct a comprehensive basis risk assessment for all parametric products in your portfolio, quantifying potential payout-loss mismatches under various scenario assumptions
• Integrate EU Taxonomy alignment screening into underwriting workflows, ensuring climate-related products meet substantial contribution thresholds
• Develop or procure forward-looking climate scenario models aligned with ECB/EIOPA stress testing requirements and Network for Greening the Financial System (NGFS) scenarios
• Establish data-sharing partnerships with climate analytics providers to access high-resolution physical risk data beyond proprietary historical loss information
• Review carbon price sensitivity in transition risk exposures, stress-testing portfolios against EU ETS price trajectories of €120-150 per tonne by 2030
• Create CSRD-compliant climate risk disclosure templates covering Scope 1, 2, and 3 emissions of insured counterparties
• Pilot hybrid parametric-indemnity products that combine index triggers with actual loss adjustment for claims above specified thresholds
• Engage with municipal and regional governments on public-private risk pool structures that align private market incentives with climate adaptation goals
• Train underwriting teams on LCA methodologies and their application to commercial risk assessment
• Establish clear governance protocols for updating pricing models as climate projections evolve, including defined escalation thresholds and review frequencies

FAQ

Q: How can insurers effectively manage basis risk in parametric climate products? A: Managing basis risk requires a multi-pronged approach. First, invest in dense sensor networks or high-resolution satellite indices that minimize spatial basis risk—the gap between where the trigger is measured and where losses occur. Second, consider hybrid structures that combine parametric triggers with traditional loss adjustment for claims exceeding defined thresholds, capping downside exposure while preserving payout speed benefits. Third, engage in transparent basis risk disclosure with policyholders, using historical back-testing to quantify expected mismatch probabilities. Some practitioners recommend offering basis risk "top-up" coverage as a separate product, allowing clients to purchase additional protection against index-loss divergence.

Q: What are the key regulatory considerations for climate risk pricing under Solvency II? A: EIOPA's 2024 guidance clarifies that climate change must be reflected in Solvency Capital Requirement calculations, particularly for natural catastrophe risk. Insurers must demonstrate that their internal models incorporate forward-looking climate projections rather than relying solely on historical loss experience. Additionally, the standard formula's nat-cat calibration is under review, with proposals to increase capital charges for perils showing material trend increases. From a pricing perspective, regulators expect insurers to justify the time horizons over which climate trends are incorporated, with particular scrutiny of assumptions underlying long-tail liability products where climate impacts may materialize decades hence.

Q: How should insurers approach CSRD compliance for climate-related disclosures? A: CSRD compliance requires systematic integration of climate risk data across underwriting, investment, and enterprise risk functions. Begin by mapping double materiality—both financial risks from climate change and environmental impacts of insurance activities. Develop standardized data collection processes for Scope 3 Category 15 emissions (investments) and underwritten emissions, recognizing that data availability remains imperfect. Leverage the European Financial Reporting Advisory Group (EFRAG) implementation guidance and sector-specific templates. Most critically, establish governance structures ensuring that disclosed climate metrics connect to strategic decision-making rather than existing as standalone compliance exercises.

Q: What role do carbon prices play in transition risk underwriting? A: Carbon prices serve as a fundamental input to transition risk assessment, influencing the financial viability of high-emitting industries and assets. Underwriters should model counterparty exposure to carbon cost pass-through limitations—sectors where competitive dynamics prevent full carbon cost recovery face heightened transition risk. Consider both regulatory carbon prices (EU ETS) and shadow carbon pricing used in corporate planning (often €80-150 per tonne for 2030 planning horizons). Scenario analysis should stress-test portfolios against disorderly transition pathways where carbon prices spike rapidly, potentially stranding carbon-intensive assets faster than orderly transition assumptions suggest.

Q: How can smaller insurers access climate risk analytics without building in-house capabilities? A: The European market offers several pathways for smaller carriers. Reinsurance partners increasingly provide climate risk analytics as value-added services bundled with capacity arrangements. Commercial platforms like Swiss Re's CatNet and Munich Re's NATHAN offer subscription-based access to hazard and exposure data. Academic partnerships with institutions conducting CORDEX (Coordinated Regional Climate Downscaling Experiment) research can provide localized climate projections. Additionally, industry associations such as Insurance Europe and national federations have developed shared tools and databases accessible to members, while EIOPA's climate risk dashboard provides standardized exposure metrics at no cost.

Sources

• Munich Re NatCatSERVICE. (2025). "Natural Catastrophe Losses in Europe 2024." Munich Re Research.

• European Insurance and Occupational Pensions Authority. (2024). "EU-wide Climate Stress Test Results." EIOPA-BoS-24/156.

• European Commission. (2024). "Sustainable Finance Progress Report: Mobilizing Private Capital for the European Green Deal." COM(2024) 215 final.

• Network for Greening the Financial System. (2024). "Climate Scenarios for Central Banks and Supervisors: 2024 Update." NGFS Technical Document.

• Swiss Re Institute. (2025). "Sigma 1/2025: Natural catastrophes in 2024." Swiss Re Sigma Research.

• European Central Bank. (2024). "Supervisory Expectations on Climate-Related and Environmental Risks." ECB Banking Supervision.

• France Assureurs. (2024). "Réforme du régime Cat Nat: Bilan et perspectives." Fédération Française de l'Assurance Annual Report.