A recent report by the European Investment Bank (EIB) and European Commission, with input from insurance intermediary group Howden, reveals a substantial protection gap in agricultural insurance across the European Union as climate-related risks intensify. The study, ‘Insurance and Risk Management Tools for Agriculture in the EU,’ examines the financial exposure of EU agriculture to climate-related hazards such as drought, flooding, hail, and frost.
Key Findings
The report indicates that only 20% to 30% of losses from these events are currently covered through public, private, or mutual insurance schemes, including those linked to the Common Agricultural Policy (CAP). Coverage varies significantly across member states, with some having minimal or no coverage. Annual average losses in the sector are estimated at €28 billion, with projections suggesting this could rise to over €40 billion by 2050 under current climate trajectories. In extreme years, total crop and livestock losses could exceed €90 billion, representing a 40% increase compared to current levels.
Growing Protection Gap
The study highlights a growing mismatch between the scale of climate-related agricultural losses and the level of financial protection in place. Drought is identified as the leading driver of losses, with increasing exposure across all EU regions. The report also notes the rising impact of frequent, smaller events that strain farm incomes and limit their ability to build financial reserves.
Recommendations
To address these challenges, the report recommends greater use of structured insurance and risk-transfer mechanisms to reduce reliance on post-event government aid. It suggests that the EU adopt a broader range of financial tools, including catastrophe bonds, public-private reinsurance arrangements, and risk pooling structures. These approaches can provide pre-arranged funding to support faster recovery and reduce fiscal shocks for both governments and farming communities.
Howden, which led the insurance-related modeling and recommendations alongside RiskLayer GMBH, emphasizes the need for more consistent data and clearer risk metrics to support market development and attract private capital into the sector. The report also underscores the importance of large-scale climate adaptation in maintaining insurance availability and affordability, particularly in high-risk and underinsured regions.
Future Directions
The authors suggest that strengthening climate resilience at both farm and regional levels is critical to maintaining long-term insurability. They also call for policy changes to support the expansion of insurance markets, including subsidy models aligned with pre-disaster protection rather than reactive support. The report was commissioned by the European Commission’s directorate-general for agriculture and developed under the fi-compass platform.
