Only one-quarter of the economic losses caused by climate change in the EU are insured. The remaining costs often fall on national budgets and businesses.
To address this, European Commission President Ursula von der Leyen announced the creation of a Climate Insurance Alliance on September 16, during her State of the Union address, to provide coverage against extreme weather events. The announcement followed a summer marked by wildfires, heatwaves, and historically low river levels. As she put it, national budgets become the insurer of last resort “all too often.” The alliance aims to change this situation.
What Is Being Proposed?
- Stakeholders involved: Insurers, investors, providers of climate risk assessment tools, public authorities, and businesses purchasing insurance.
- Objective: To increase insurance coverage, promote tools that reward risk prevention, and ensure that insurance arrangements can respond to the growing threat of natural disasters.
- Tools: The European Commission refers to group insurance and parametric insurance, which provides automatic payouts when a predefined threshold, such as a rainfall or temperature level, is exceeded.
- Details yet to be confirmed: Published reports do not specify a launch date, funding amount, or list of members.
The Broader Resilience Package
The alliance forms part of a broader effort to strengthen climate adaptation, preparing Europe for changes that are already taking place. The European Commission is expected to present a climate resilience strategy this month, focusing on climate risk management in 100 vulnerable European regions. Other measures include a heatwave action plan with improved early warning systems, a European water initiative strengthening drought risk management, and proposals for a European firefighting fleet.
Europe is lagging behind in climate adaptation. In February, the EU’s independent climate advisers concluded that investment remains below the required level and recommended better planning, including avoiding construction in flood-prone areas and designing cities that remain cool during heatwaves. Europe is warming at approximately twice the global average rate.
What This Means for Your Business
The alliance signals that physical climate risk is no longer merely a technical assessment issue. It is increasingly becoming a question of whether a company can obtain insurance coverage and at what cost.
If the European Commission succeeds in expanding insurance coverage, insurers, investors, and public authorities will examine more closely how businesses understand and manage their exposure to physical climate risks. Companies that can demonstrate and document their risk management efforts will be in a stronger position.
Four key considerations stand out:
- Physical climate risk affects the price and availability of insurance coverage. As insurance coverage expands, insurability, premiums, and risk reduction incentives will increasingly influence how companies are assessed.
- Prevention may be rewarded. The European Commission refers to tools that reward risk prevention, suggesting that well-documented adaptation measures could work in a company’s favour.
- Parametric insurance deserves attention. Businesses should understand how payout triggers are defined and what basis risk means: the possibility that an insurance payout may not correspond to the actual loss incurred.
- The case for climate risk assessment and documentation is becoming stronger. Companies already reporting on physical climate risks and adaptation measures are better positioned to engage with insurers, banks, and public authorities.
Overall, the direction is clear: insurance is becoming an integral part of the climate adaptation discussion rather than a separate financial consideration. Companies that document their physical climate risks and the measures they take to mitigate them will be better prepared when these issues directly affect their insurance coverage and climate-related disclosures.
Would you like to understand how climate risks could affect your company’s insurability? VERALLIS can help you connect physical climate risk assessments with your climate adaptation and insurance strategy.
Sources
Insurance Journal: EU to Launch Climate Insurance Alliance (September 16, 2026)
Reinsurance News: European Commission Launches Climate Insurance Alliance