Europe is entering what public-interest NGO Finance Watch calls a “spiral of uninsurability”. In a new report, published on Tuesday 28 October, the Brussels-based association warns that the European insurance system is being overwhelmed by rising climate-related costs.
Finance Watch, which was founded after the 2008 financial crisis and is partly funded by the European Union, acts as a civil-society counterweight to the financial lobby. It provides technical policy research and advocates for financial regulation that serves the public interest. In this report, it warns that the insurance sector is becoming a transmission channel for climate-driven fiscal risk, with the costs increasingly shifting onto taxpayers.
Only about 25% of weather-related economic losses are currently insured across the European Union, with coverage dropping to just 5% in some Member States. The organisation calls this a “protection gap” that is now expanding into a “void”. The European Environment Agency estimates that climate-related losses topped €60bn in 2023, and Finance Watch cautions that as insurers retreat and premiums climb, “the public purse is left to pick up the bill”, deepening fiscal stress and undermining resilience.
From sharing losses to sharing solutions
The European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA) have proposed a two-pillar approach to mutualise catastrophe risk through an EU reinsurance scheme and a European disaster fund. Finance Watch welcomes these as important but insufficient steps, saying they “mutualise losses without reducing underlying risks”.
“Europe must also share the solutions,” said Vincent Vandeloise, the report’s co-author. “Investing in resilience today reduces costs tomorrow.” Finance Watch calls for a third pillar to complement the ECB–EIOPA proposal: one focused on long-term investment in prevention and adaptation.
This third pillar would mobilise concessional public finance--combining public guarantees with private capital--to fund flood defences, renewable energy infrastructure and climate-resilient housing. The group also proposes climate capital buffers that lower prudential requirements for insurers and banks investing in mitigation and adaptation, and urges harmonised EU definitions of “impact” to direct funding towards projects that deliver measurable emissions cuts.
A rising bill for taxpayers
According to Finance Watch, natural catastrophes in Europe have increased by 30% in the past two decades, with a further 48% surge between 2021 and 2024. Modelling by the ECB and the Network for Greening the Financial System suggests that a series of major disasters could shave 4.7% off Euro-area GDP.
Public finances are already stretched. The report warns that governments are “living from disaster to disaster”, with reconstruction and relief draining fiscal space needed for prevention. Unless the EU shifts focus to risk reduction, it argues, uninsurable losses could “undermine fiscal stability, social protection, and ultimately economic growth”.
Private capital failing to bridge the gap
The report notes that private investment flows remain far below what is needed. The Organisation for Economic Co-operation and Development estimates that global clean-energy investment must reach $4.5trn annually by the early 2030s, yet only $1.8trn was mobilised in 2025. Finance Watch estimates that European private markets can cover only €300bn-€600bn of the €1.6trn required each year for the transition, leaving two-thirds to be financed publicly.
Finance Watch criticises the current distribution of green capital, saying mature sectors such as solar and wind attract abundant funding while essential but less profitable areas--energy grids, biodiversity protection and nascent clean technologies--remain underfunded. It adds that prudential rules such as Basel III and Solvency II reinforce short-termism by requiring capital to be valued on one-year horizons, which “discourages investment in the long-term resilience Europe urgently needs”.
Subsidies, competition and policy inertia
The report also highlights conflicting signals from governments. The International Monetary Fund projects fossil-fuel subsidies to reach $8.2trn by 2030, even as policymakers call for green investment. Meanwhile, Europe’s defence stocks have surged--Leonardo up 762%, Saab 660% and Thales 237% in five years--diverting investor appetite from climate-positive sectors.
Finance Watch argues that “prudential frameworks such as Basel and Solvency II operate on one-year horizons, overlooking systemic, long-term climate risks and discouraging investment in riskier, long-horizon projects central to climate mitigation and adaptation.” The organisation says that until financial regulation evolves to recognise the benefits of early mitigation, the EU will remain trapped in short-termism that undermines resilience.
Towards a sustainable insurance model
The report concludes that Europe’s disaster-financing architecture must be redesigned to reward prevention rather than compensation. Access to EU disaster funds should, it suggests, depend on credible insurer transition plans and national adaptation strategies aligned with the European Climate Law.
Finance Watch warns that policymakers must avoid short-term fixes that undermine the sustainable finance agenda and risk shifting the costs of climate change onto future generations, locking in a future where climate shocks are uninsurable, fiscal space is exhausted and citizens are left to bear the cost of inaction. “Mutualising solutions, not just losses, is the path to a sustainable, resilient Europe,” the authors conclude.