In a previous blog, we provided an overview of the current and proposed natural disaster-related measurements in some European countries and Australia. In this blog, we will focus on the possible EU-level solution proposed by the European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA) in their latest discussion paper, issued in December 2024.
The proposal, as was also in the case of their discussion paper from April 2023, focuses on the growing “insurance protection gap” in Europe. It highlights that Europe is the fastest-warming continent in the world. If we look back at only the last six months, there were at least three severe climate-related catastrophes in Europe: Portugal wildfires and the Spanish and the Czech Republic Floods.
Among other significant economic consequences of the increasing frequency and severity of natural catastrophes, we need to highlight the impact of these events on insurance businesses and indirectly on the taxation of the insurance premium amounts.
The paper summarises 12 existing national natural catastrophe insurance schemes which we are going to brief in our blog series – adding the current tax treatment of these schemes. In this blog, we provide an overview of the EU-level solutions as proposed by the paper and a summary of the approaches followed by the EU countries.
Proposal for the possible EU-level solution
A two-pillar solution was included in the referenced document. The two pillars are:
- EU public-private reinsurance scheme: This would not substitute the national level reinsurance schemes, it would be additional. This scheme would be voluntary and financed by risk-based premium amounts. The aim of this pillar is to increase the insurance coverage of the natural catastrophe risk where insurance coverage is low.
- EU fund for public disaster financing: This second pillar would be made compulsory and aims to finance rebuilding efforts after a high-loss natural disaster. Contributions from member states would finance this.
Both of these pillars could potentially affect the amount of tax payable by the insurance companies on the collected premium amounts. The first pillar might indirectly increase the tax amount levied on the reinsured premium amount, such as in the case of France CCR (Caisse Centrale de Réassurance), where IPT (and contributions to the Major Risk Prevention Fund) is due on the CATNAT premium. The second pillar may trigger newly introduced contributions that might be levied on the insurance premium amounts.
Summary of the national level approaches
The current national schemes aim to broaden insurance coverage. Some countries, like Italy most recently, make certain natural catastrophe risks such as earthquakes, floods and landslides compulsory to be insured by either or both entities or individuals.
In other cases, compulsory reinsurance involving public-private sector coordination exists. The most well-known reinsurance system exists in France, the so-called CCR. However, there is a reinsurance system in Iceland, where insurers collect CATNAT premium amounts and pay them towards NTI (Icelandic Natural Disaster Insurance).
It remains to be seen the extent to which the proposals are acted upon and the impact that they may have on premium taxation regimes in the EU. As it is such a significant topic in insurance currently, Sovos will be keeping a close eye on developments in this area.
