European insurers are facing new challenges as flood risk evolves under the influence of climate change and regulatory shifts, according to recent analysis from Guy Carpenter.
The European Insurance and Occupational Pensions Authority (EIOPA) set expectations in April 2021 for insurers to integrate climate change risk scenarios into their Own Risk and Solvency Assessment (ORSA). Updates to the Solvency II Directive are now aligning with these expectations and are expected to be incorporated into national laws by 2027.
Guy Carpenter notes that national regulators have increased their focus on climate change analysis within ORSA submissions. There is growing emphasis on climate-related disclosures and risk management, particularly regarding quantifying the impacts of climate change on insurance portfolios.
Scientific research indicates that as air temperatures rise, the atmosphere can hold more moisture, which is projected to increase both the frequency and severity of flooding events. Guy Carpenter’s analysis points out that changes in river flooding are not uniform across Europe.
For example, regions such as parts of the UK are expected to see more frequent river flooding, while decreases are anticipated in some areas of southern and eastern Europe.
In the UK, the impact of climate-related flooding is increasingly evident for homeowners as well. Research from Aviva found that 58% of new-build homeowners reported climate-related property damage in the past five years, and 72% believe their homes will be affected by climate change within the next decade.
This heightened awareness is influencing both consumer expectations and how insurers approach risk assessment and product development in the face of changing flood patterns.
Guy Carpenter highlights that the complexity and uncertainty of regional flood projections underscore the need for ongoing research and adaptive planning.
The firm stressed the importance of quantifying climate change risk as regulators and stakeholders demand more detailed disclosures and as climate impacts increasingly influence insurance business decisions.
While scientific understanding of climate-related perils continues to advance, Guy Carpenter cautions that climate change is not the only factor affecting loss experience. Natural variability, inflation, and socio-economic development also contribute to changing risk profiles.
