GREEN PAPER on the insurance of natural and man-made disasters
Date: 2013-04-16
Institutions: European Commission
Subjects: civil liability, climate change, environmental liability, insurance indemnity, man-made disaster, natural disaster, scientific report

EUROPEAN 
COMMISSION 

Strasbourg, 16.4.2013  
COM(2013) 213 final 

GREEN PAPER 

on the insurance of natural and man-made disasters 

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GREEN PAPER 

on the insurance of natural and man-made disasters 

1. 

INTRODUCTION 

As many other regions of the world, the European Union is vulnerable to nearly all types of 
natural  disasters.  Disasters  not  only  cause  human  losses  but  also  damages  to  the  value  of 
billions  of  euros  every  year,  affecting  economic  stability  and  growth.  Disasters  may  have 
cross-border effects and can potentially threaten entire areas in neighbouring countries. Even 
where costs of major disasters are locally concentrated, if costs are inadequately covered by 
insurance then individual Member States may carry large fiscal burdens, which could cause 
internal and external imbalances. This is thus an important issue for citizens, companies and 
governments across the Union. 

In  2010  the  Council  invited  the  Commission  to  evaluate  and  report  on  the  potential  for  the 
European  Union  to  facilitate  and  support  increased  coverage  of  appropriate  disaster  risk 
insurance and financial risk transfer markets, as well as regional insurance pooling, in terms 
of  knowledge  transfer,  cooperation,  or  seed  financing1.  Subsequently,  the  Commission 
organised a Conference on prevention and insurance of natural catastrophes2 and conducted a 
study entitled "Natural Catastrophes: Risk Relevance and Insurance Coverage in the European 
Union"3.  

This  Green  Paper  poses  a  number  of  questions  concerning  the  adequacy  and  availability  of 
appropriate disaster insurance and accompanies the Communication entitled "An EU strategy 
on adaptation to climate change". The objective is to raise awareness and to assess whether or 
not action at EU level could be appropriate or warranted to improve the market for disaster 
insurance  in  the  European  Union.  More  generally,  this  process  will  also  expand  the 
knowledge  base,  help  to  promote  insurance  as  a  tool  of  disaster  management  and  thus 
contribute to a shift towards a general culture of disaster risk prevention and mitigation, and 
bring in further data and information. 

The  following  graphs  provide  an  overview  of  the  occurrence  of  natural  and  man-made 
disasters in the European Union during recent years. 

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Council  Conclusions  on  Innovative  Solutions  for  Financing  Disaster  Prevention  (3043rd  Council 
meeting, Brussels, 8 and 9 November 2010). 
http://ec.europa.eu/internal_market/insurance/consumer/natural-catastrophes/index_en.htm  
Joint  Research  Centre,  European  Commission  (2012),  Natural  Catastrophes:  Risk  relevance  and 
Insurance Coverage in the EU. 

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Graph 1: Natural disasters in EEA States (1980–2011) 

Source:  European  Environment  Agency,  Climate  change,  impacts  and  vulnerability  in  Europe  2012,  An 
indicator-based report, EEA Report No 12/2012. 

Storm  surges,  river  or  flash  floods  are  one  of  the  main  natural  disaster  risks  facing  Europe 
(e.g., the 2012 United Kingdom, Ireland and Romanian floods, 2002, 2005 and 2010 Europe-
wide floods).  

Graph 2: Floods – maximum historical losses 

Source:  Joint  Research  Centre,  European  Commission  (2012),  Natural  Catastrophes:  Risk  relevance  and 
Insurance Coverage in the EU, based on available data4. 

Wild forest fires are also a threat that Member States have to deal with every year. The 2003 
heat wave was the hottest on record in Europe since at least 15005.  

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According to the Joint Research Centre, the main data source for historical total losses is the Emergency 
Events Database (EMDAT). It contains essential core data on the occurrence and effects of over 18 000 
mass natural and technological disasters in the world from 1900 to present. However, information is not 
available for all recorded events: for example in the extracted dataset, economic losses are available for 
318 events (flood, storm, earthquake and drought) out of 561 recorded events from 1990 to 2010. 

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A number of winter and wind storms have also caused severe damage in European countries 
in recent years. 

Graph 3: Storms – maximum historical losses 

Source:  Joint  Research  Centre,  European  Commission  (2012),  Natural  Catastrophes:  Risk  relevance  and 
Insurance Coverage in the EU, based on available data. 

The 2009 L‘Aquila and the 2012 Emilia Romagna earthquakes resulted in deaths, injuries and 
devastation of residential and commercial property. Earthquakes can also trigger tsunamis in 
Europe (such as in 1908 in Messina or in 1755 in Lisbon). 

Graph 4: Earthquake – maximum historical losses 

Earthquake - maximum historical losses

Total losses

P
D
G
0
1
0
2
f
o
% 

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

DE

UK

ES

NL

CY

SI

BE

IT

GR

Country

Source:  Joint  Research  Centre,  European  Commission  (2012),  Natural  Catastrophes:  Risk  relevance  and 
Insurance Coverage in the EU, based on available data. 

The volcanic eruption  of Eyjafjallajökull in March 2010 demonstrated how far-reaching the 
consequences  of  a  natural  disaster  can  be.  Experience  has  shown  that  such  an  improbable 
event  may  have  long-lasting  and  serious  consequences  for  other  parts  of  Europe  and  of  the 
world.  

Between  1980  and  2011,  the  economic  toll  of  natural  disasters  in  the  whole  of  Europe 
approached 445 billion euro in 2011 values. About half of all losses can be attributed to a few 
large events, such as storms like Lothar in 1999, Kyrill in 2007 and Xynthia in 2010, and to 
the floods in central Europe in 2002 and in the United Kingdom in 2007. Damage costs from 

5 

Luterbacher,  J.,  Dietrich,  D.,  Xoplaki,  E.,  Grosjean,  M.,  Wanner,  H.  (2004),  European  seasonal  and 
annual temperature variability, trends, and extremes since 1500, Science, 303, 1499–1503. 

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extreme  weather  events  in  EEA  States  have  increased  from  EUR  9  billion  in  the  1980s  to 
more than 13 billion euro in the 2000s (values adjusted to 2011 inflation)6.  

Graph  5:  Natural  disasters  in  EEA  States  –  loss  events,  fatalities  and  losses  (1980  to 
2011) 

Source:  European  Environment  Agency,  Climate  change,  impacts  and  vulnerability  in  Europe  2012,  An 
indicator-based report, EEA Report No 12/2012. 

With climate change, insurance will be called upon to cover increasingly frequent and intense 
events.  Changes  in  climate,  demographics  and  population  concentrations,  growth  in 
catastrophe-exposed areas and rising wealth and property values are increasing the exposure 
and vulnerability of economic assets and the severity of losses7. In the short term, the effect of 
climate  change  on  insurance  may  not  be  that  significant.  However,  in  the  longer  term, 
particularly in sectors or areas where insurance has not been customary, climate change could 
have an impact on the availability and affordability of insurance. Potential losses are highly 
dependent on changes in exposure and vulnerability. Overall, the probability of most types of 
extreme  weather  events  is  expected  to  grow  significantly8.  As  a  result  of  increasing  risks, 
insurance might become unavailable or unaffordable in certain areas. Unavailable insurance, 
one  of  the  factors  that  contributes  to  vulnerability,  may  exacerbate  the  susceptibility  of 
society, leaving governments with potentially large financial exposures. 

Man-made  disasters,  such  as  industrial  accidents  involving  dangerous  substances  can  also 
have large-scale and cross-border impacts (i.e., the 2010 Gulf of Mexico accident related to 
offshore oil extraction, the 2011 alumina depot leaks in Ajka, Hungary). Furthermore, natural 
hazards  and  disasters,  for  example,  lightning,  low  temperature  or  earthquakes,  may  trigger 
man-made  (‘natech’  -  Natural  Hazard  Triggering  Technological  Disasters)  disasters  such  as 
atmospheric releases, liquid spills or fires9 (i.e., the 2011 Fukushima nuclear disaster, Japan). 
Such  compound  ‘natech’  disasters  can  occur  more  often  due  to  the  increased  frequency  of 

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European  Environment  Agency,  Climate  change,  impacts  and  vulnerability  in  Europe  2012,  An 
indicator-based report, EEA Report No 12/2012. 
Intergovernmental Panel on Climate Change (2012), Changes in Climate Extremes and their Impacts on 
the Natural Physical Environment in Managing the Risks of Extreme Events and Disasters to Advance 
Climate  Change  Adaptation;  European  Environment  Agency  (2010),  Mapping  the  impacts  of  natural 
hazards and technological accidents in Europe, an overview of the last decade. 
Intergovernmental Panel on Climate (2012) Chapter 3: Changes in Climate Extremes and their Impacts 
on  the  Natural  Physical  Environment  in  Managing  the  Risks  of  Extreme  Events  and  Disasters  to 
Advance Climate Change Adaptation. 
Joint Research Centre, European Commission (2010), Analysis of Natech risk reduction in EU Member 
States using a questionnaire survey. 

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extreme  natural  events  and  the  increased  complexity  and  interdependency  of  industrial 
systems. 

Graph 6: Industrial accidents in EEA States reported in the Major Accident Reporting 
System 

Source: European Environment Agency, Mapping the impacts of natural hazards and technological accidents in 
Europe, EEA Technical Report No 13/2010. 

Private  insurance  can  address  a  number  of  related  policy  concerns  and  can  contribute  to 
sustainable  public  finances10.  Insurance  is  one  of  the  tools  for  disaster  risk  management, 
together with risk prevention, preparedness and response measures: a functioning disaster risk 
insurance system, beyond risk sharing, can be operational at all levels of the risk management 
cycle, from risk identification and risk modelling to risk transfer and recovery. Insurance has 
a specific role: it does not prevent the loss of lives or assets but helps to reduce the economic 
impact and facilitates recovery after disasters. Well-designed insurance policies can also work 
as a market based instrument to discourage risky behaviour and promote risk awareness and 
mainstream disaster proofing in economic and financial decisions. 

2. 

MARKET PENETRATION OF NATURAL DISASTER INSURANCE 

Major natural disasters have large and significant negative effects on economic activity, both 
in their intermediate impact and in the longer term. It is mainly the uninsured losses that drive 
the  subsequent  macroeconomic  cost,  whereas  sufficiently  insured  events  are  insignificant  in 
terms of forgone output11.  

Recent  analytical  research  undertaken  by  the  Joint  Research  Centre  shows  that,  based  on 
available data, there is currently a low market penetration rate of disaster insurance in certain 
Member States12. The analysis highlights that flood, storm and earthquake risk is, as expected, 
heterogeneous  among  Member  States.  However,  based  on  available  data,  there  are  cases 
where disaster insurance markets do not seem to cope fully with existing risks. According to 
the research available, for storms, penetration rates are high in most Member States. However, 

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International Monetary Fund (2006), Insuring Public Finances Against Natural Disasters—A Survey of 
Options and Recent Initiatives, IMF Working Paper WP/06/199. 
Bank for International Settlements (2012), Unmitigated disasters? New evidence on the macroeconomic 
cost of natural catastrophes, BIS Working Papers No 394. 
Joint Research Centre (2012).  

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for  flood  and  earthquake,  penetration  rates  are  only  high  in  cases  where  those  risks  are 
bundled with other risks. 

Graph 7: Natural disasters in EEA States (1980 to 2011) – overall and insured losses 

Source:  European  Environment  Agency,  Climate  change,  impacts  and  vulnerability  in  Europe  2012,  An 
indicator-based report, EEA Report No 12/2012. 

(1) 

(1) 

Questions 

What  is  your  view  on  the  penetration  rate  of  disaster  insurance  in  the  European 
Union?  Please  provide  details  and  data  to  support  your  arguments.  Is  more 
research needed to understand any possible gaps in insurance supply and demand, 
insurance availability and coverage? 

2.1. 

Product bundling 

Insurance  redistributes  and  reduces  the  financial  risk  associated  with  adverse  events,  by 
sharing costs either between individuals or over time. Insurance transfers individual risks to a 
pool, managed by an insurer. By aggregating or pooling risks, it is possible to reduce the cost 
of disasters in any particular time period. 

The coverage provided by the private insurance market is funded through premiums, backed 
up  by  shareholder  capital  to  meet  likely  deviations  from  the  expected  losses.  Insurance 
premiums  reflect  the  expected  loss  of  the  insured  individual,  an  uncertainty  margin  for  the 
given line of insurance business, a charge for the shareholder capital, a share of loading costs, 
i.e., administrative and other costs associated with underwriting insurance policies, and profit. 
The  premiums  are  invested  on  financial  markets,  where  the  investment  risks  need  to  be 
uncorrelated with the underwriting risk, or re-insured to take some of the risk out of the pool. 
In this way, insurance spreads the risk of economic loss across society and over regions. 

The  specific  feature  of  disasters  is  that  they  can  damage  many  properties  in  a  concentrated 
area at the same time: earthquakes occur along seismic fault lines, floods occur in low-lying 
areas and windstorms are very often directed at coastlines. This contrasts with other types of 
risk  against  which  property  insurance  provides  cover,  such  as  theft  or  fire.  It  is  unlikely, 
although not impossible, that an entire neighbourhood is burgled at the same time.  

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There are two main techniques to enable insurance to handle correlated risks. The first is to 
widen the pool, to make it very unlikely that individual risks are highly correlated through any 
potential  disaster.  Another  common  technique  is  bundling  together  several  types  of 
uncorrelated perils into a single insurance policy, e.g., fire and flood, storm or earthquake13. 
Since  each  peril  is  independent  from  any  other  in  the  policy,  bundling  reduces  the 
accumulated risks of any one hazard in the policy. 

Product  bundling  represents  general  solidarity  between  consumers.  Therefore,  product 
bundling is sometimes introduced through a mandatory extension of simple risks such as fire 
or  motor  insurance  to  natural  disasters  coverage.  Ideally,  the  system  should  recognise  that 
some insured persons pose no or low risks compared to those from risk-prone areas, through, 
for instance, premium discounts. 

Questions 

(2) 

What  further  action  could  be  envisaged  in  this  area?  Would  mandatory  product 
bundling be an appropriate way to increase insurance cover against disaster risks? 
Are there any less restrictive ways, other than mandatory product bundling, which 
could constitute an appropriate way to increase insurance coverage against disaster 
risks? 

2.2. 

Compulsory disaster insurance 

Consumers  may  not  be  inclined  to  insure  themselves  against  risks  that  are  unlikely  to 
individually  impact  on  them.  People  and  businesses  often  underestimate  the  real  risk  of  a 
disaster  to  them  (risk  myopia),  and  are  not  properly  prepared  to  deal  with  the  financial 
consequences. They rely on social networks or government relief.  

Another issue may be that of adverse selection. This refers to the phenomenon in insurance 
whereby groups of people who feel that they are at a higher risk will purchase insurance to a 
large extent, whereas those who do not perceive such a high degree of risk will not feel it is 
necessary  to  purchase  insurance.  Adverse  selection  is  particularly  troublesome  in  disaster 
insurance. If only the highly exposed purchase insurance, the premium will be prohibitively 
expensive, and the pool will be too small to cope with disasters, since there is no buffer from 
unaffected members of the pool. 

Compulsory  disaster  insurance  could  overcome  those  problems.  It  results  in  high  market 
penetration  and  a  large  pool  of  insured  persons.  This  facilitates  risk  spreading  and  reduces 
administrative costs per policy, while limiting ex-post government relief. 

Questions 

(3) 

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Which compulsory disaster insurance, if any, exists in Member States? Are these 
insurance  products  generally  combined  with  compulsory  product  bundling  or 
obligation  for  insurers  to  provide  cover?  Is  compulsory  disaster  insurance 
generally  accompanied  by  a  right  for  the  customer  to  opt  out  of  some  disaster 
risks? What are the advantages/possible drawbacks? Would EU action in this area 

Annex A of the First Non-life Insurance Directive 73/239/EEC introduces the classification of risks into 
different  classes  of  insurance  which  determine,  in  particular,  the  scope  of  an  insurer's  licence  and 
product lines. Insurance class no. 8 "fire and natural forces" refers to damage to or loss of property due 
to  individual  risks, namely  fire,  explosion, storm,  natural forces other  than  storm,  nuclear  energy  and 
land  subsidence.  Insurance  class  no.  9  "other  damage  to  property"  covers  all  damage  to  or  loss  of 
property due to hail or frost. 

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be useful? 

2.3. 

Disaster insurance pools 

Disaster  insurance  pools  may  extend  the  risk  absorption  capacity  of  the  insurance  market. 
They can provide coverage against aggregate exposures and risks that are uninsurable because 
of moral hazard, the small size of the given market or excessive claims cost. The pools may 
supplement systems with mandatory product bundling or with compulsory insurance.  

The  Commission  renewed  with  modifications  the  co(re-)insurance  pools  exemption  in  the 
Insurance Block Exemption Regulation 267/201014. It recognised that risk sharing for certain 
types of risks, for which individual insurance companies are reluctant or unable to insure the 
entire risk alone, is crucial in order to ensure that all such risks can be covered.  

The  Regulation  only  allows  co-operation  through  pools  under  certain  conditions.  Also,  it  is 
limited  to  agreements  which  do  not  afford  the  undertakings  involved  the  possibility  of 
eliminating  competition  in  respect  of  a  substantial  part  of  the  products  in  question.  Pools 
outside  the  Regulation  due  to  high  market  shares  are  not  forbidden,  but  need  to  be  self-
assessed under competition rules as they may involve benefits so as to justify an exemption 
under Article 101(3) of the Treaty on the Functioning of the European Union.  

2.4. 

Governments as (re-)insurers and (re-)insurers of last resort 

Public  authorities  may  be  involved  as  insurers  or  may  sponsor  state-mandated  catastrophe 
insurance  pools.  Such  insurance  programmes  can  alleviate  political  pressure  to  allocate 
substantial governmental resources in the aftermath of a natural disaster. But the framework 
needs  to  prevent  the  problem  of  moral  hazard,  e.g.,  policy-holders  might  be  encouraged  to 
behave in riskier ways once they know that they will be covered by public resources whether 
they protect themselves beforehand or not.  

Through public-private partnerships, insurers may offer their expertise and tools (such as risk 
information platforms) to assess the risks, sell policies and in some cases advise governments 
in their investment decisions. Insurers may also be required to provide insurance coverage for 
medium-sized losses; the government limits its exposure and insurers bear a level of risk that 
is within their capacity. 

Governments  may  also  manage  re-insurance  programmes.  They  can  require  the  private 
market to take on and pay for some proportion of the risk, i.e., quota-share treaties. 

Governments  may  serve  as  (re-)insurers  of  last  resort  by  taking  on  risks  above  a  certain 
disaster  damage  level,  i.e.,  stop-loss  re-insurance.  This  approach  blends  the  potential  risk-
spreading  capacity  of  the  government  and  the  ability  of  the  market  to  apply  insurance 
principles and also to use its administrative capacity, i.e., collecting premiums, marketing and 
handling  claims.  Public  programmes,  therefore,  may  provide  for  cover  at  the  highest  risk 
levels, while the private market retains some or all of the lower tiers of risk. 

Questions 

(4) 

How can state or state-mandated disaster (re-)insurance programmes be designed 
and financed to prevent the problem of moral hazard? 

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Commission Regulation (EU) No 267/2010 of 24 March 2010 on the application of Article 101(3) of 
the Treaty on the Functioning of the European Union to certain categories of agreements, decisions and 
concerted practices in the insurance sector (OJ L 83, 30.3.2010, p. 1). 

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2.5. 

Parametric index-based weather insurance and other innovative solutions 

2.5.1.  Parametric index-based weather insurance 

Under traditional weather-related insurance schemes, such as property or liability insurance, 
insurance compensation will be paid out following an assessment of the insured party's losses. 
Once a loss assessment is completed and agreed, the insured party receives an indemnity pay-
out.  

Under  a  parametric  index-based  insurance  scheme,  losses  resulting  from  extreme  weather-
related events are compensated when a pre-defined weather index deviates from the historic 
average, irrespective of the actual loss. That type of insurance relies on the measurement of an 
objective  and  independent  index  that  is  highly  correlated  with  the  actual  loss.  Traditional 
indemnity-based and parametric insurance can be combined. 
Building on lessons and experience from different regional initiatives15, parametric insurance 
could  be  considered  as  a  solution  both  for  the  private  and  public  sectors,  e.g.,  for  critical 
public  infrastructure.  It  can  improve  affordability  of  insurance  by  reducing  administrative 
costs, because it does not include a claims adjustment process. It also speeds up pay-outs, and 
can  be  associated  with  simpler  insurance  contracts.  Parametric  covers  can  help  reduce 
information asymmetries between insurers and customers. On the other hand, such contracts 
present a significant basis risk, i.e., the claim pay-out does not match the actual loss incurred 
and policy-holders are not necessarily able to assess it. 

Insurance is a critical requirement for development as uninsured losses can extend the cycle 
of  poverty  and  impede  economic  growth.  Alternative,  simplified  risk  transfer  tools  such  as 
micro-insurance products are being developed in developing countries. Parametric insurance 
programmes,  supported  by  the  Commission,  have  also  been  implemented  in  third  countries, 
particularly  exposed  to  weather  and  catastrophic  risks  such  as  droughts,  earthquakes,  and 
storms16. 

2.5.2.  Meteorological research 

The  complexities  of  parametric  design  and  basis  risk  may  be  significant  constraints  on 
extending these schemes. Meteorological research needs to identify viable indexes. It can only 
be  scaled-up  for  widespread  coverage  if  there  is  systematic  coverage  of  the  territory,  with 
weather  stations  sufficiently  close  to  insured  persons  and  risk  zones  mapped.  In  addition  to 
the physical presence of meteorological stations, there is a need to collect, maintain, share and 
archive  data  and  to  make  them  readily  available  in  relation  to  insured  events.  The  use  of 
satellite data in combination with numerical analyses and forecasts has already resulted in a 
continuous increase in the skills required for making meteorological forecasts. 

Similarly, opportunities related to satellite-based indices that use remote sensing tools can be 
explored.  Many  economic  sectors  are  sensitive  to  climate  conditions,  hence  to  a  changing 
climate. Therefore, the benefits of investing in weather infrastructure will extend beyond the 
development of index-based insurance products, notably to forestry and agricultural products. 
The Commission is currently conducting consultations aimed at the future implementation of 

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Such  as  the  Caribbean  Catastrophe  Risk  Insurance  Facility  (CCRIF),  the  Pacific  Catastrophe  Risk 
Assessment and Financing initiative (PCRAFI). 
For instance the Global Index Insurance Facility as established by the World Bank. 

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a  Climate  Change  Monitoring  service  as  part of  the  European  Earth  monitoring  programme 
(GMES)17. 

2.5.3. 

Insurance-linked securities 

Insurance-linked  securities  such  as  catastrophe  bonds  or  other  alternative  risk  transfer 
instruments  can  be  seen  as  an  effective  way  of  increasing  insurance  capacity  for  highly 
improbable, low-frequency, high-severity natural catastrophe events.  

For  insurers,  re-insurers  and  businesses,  the  bonds  provide  multi-year  protection  against 
natural  catastrophes  with  minimal  counterparty  credit  risk.  To  investors,  they  offer  the 
potential to diversify and reduce their portfolio risk as the bond defaults do not correlate with 
defaults of most other securities. 

Questions 

(5) 

Do you see any difficulties, barriers or limitations in using information to generate 
parametric  insurance?  Which  factors  could  scale-up  the  promotion  and  uptake  of 
such innovative insurance solutions? 

3. 

DISASTER RISK AWARENESS, PREVENTION AND MITIGATION 

There  is  strong  political  awareness  in  the  European  Union  around  the  need  to  develop  and 
implement  strong  Disaster  Risk  Management  (DRM)  policies  that  aim  to  build  resilience 
against  disasters  and  mitigate  their  most  severe  effects18  both  inside  the  Union  and  in  its 
external action.  

At  the  international  level,  resilience  and  disaster  risk  reduction  have  been  featured  as  a  key 
theme in international summits such as the Rio Summit on sustainable development in 2012, 
or the G20 initiatives on disaster risk management and the development of a methodological 
framework intended to help governments in developing more effective DRM strategies and, in 
particular, financial strategies, building on strengthened risk assessment and risk financing19. 
Furthermore,  the  process  toward  a  new  international  framework  for  disaster  risk  reduction 
(post-2015 Hyogo Framework for Action) puts an increased focus on the financing aspects of 
disaster risk management and the economic costs of disasters. 

Managing  risks  from  natural  disasters  requires  better  management  of  exposure  to  natural 
hazards,  through  urban  and  land-use  planning.  A  disaster  management  policy  needs  to 
encompass prevention, resilience and reduction of individual vulnerability and strengthening 
eco-systems.  In  hazard-prone  areas,  property  owners  will  have  to  invest  even  more  in 
property-risk reduction measures.  

Disaster  risk  management  can  help  to  promote  undisturbed  economic  development  and 
prosperity:  

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Regulation (EU) No 911/2010 of the European Parliament and of the Council of 22 September 2010 on 
the European Earth monitoring programme (GMES) and its initial operations (2011 to 2013) (OJ L 276, 
20.10.2010, p. 1). 
Communication from the Commission "A Community approach on the prevention of natural and man-
made  disasters"  (COM(2009)82  final);  Council  Conclusions  on  a  Community  framework  on  disaster 
prevention within the EU (2979th Council meeting, Brussels, 30 November 2009) and Communication 
from  the  Commission  ''EU  Strategy  for  supporting  disaster  risk  reduction  in  developing  countries'' 
(COM(2009) 84 final). 
G20/OECD methodological framework on disaster risk assessment and risk financing. 

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In  the  short  term,  investing  in  risk  management  can  be  a  means  of  accelerating 
actions  for  growth  and  jobs  (new  technologies,  research  and  development,  resilient 
buildings and infrastructure, innovative financial instruments); 

In the medium term, improved disaster assessment and resilience helps to focus on 
structural  sustainability  of  public  and  private  finances,  and  to  improve  the  macro-
economic  stability  by  reducing  the  detrimental  impact  of  natural  and  man-made 
disaster on growth and public and private budgets.  

In  a  long-term  perspective,  investing  in  risk  management  has  a  high  rate  of  return 
and is contributing to sustainable economic development.  

Risk  assessment  (including  analysis  of  exposure  and  vulnerability)  is  an  important  and 
fundamental step in order to inform disaster risk management and the planning process and in 
order  to  allocate  financial  resources.  Multi-risk  assessments  taking  into  account  possible 
hazards and vulnerability interactions may also help to address correlated risks and knock-on 
effects.  

Building  resilience  is  a  long-term  effort  that  needs  to  be  integrated  in  national  policies  and 
planning:  resilience  strategies  are  also  part  of  the  development  process  and  contribute  to 
different long-term policies, in particular climate change adaptation and food security.  

3.1. 

Insurance  pricing  as  an  insurance  market-based  incentive  to  promote  risk 
awareness prevention and mitigation 

Governments  could  continue  to  absorb  a  large  share  of  the  costs  of  mitigation  and  public 
relief  by  continuing  to  generously  compensate  victims.  But  this  is  likely  to  exacerbate 
governments’  budget  difficulties  and  encourage  undesired  development  in  risk-prone  areas. 
Alternatively,  public  authorities  could  withdraw  resources  from 
this  area,  control 
development  in  risk-prone  areas  and  rely  more  heavily  on  market  forces  to  encourage 
individual responsibility for reducing losses and insuring against them. 

Insurers  can  provide  market-based  incentives  for  risk  prevention.  Risk-based  pricing  can 
motivate  insured  persons  to  take  individual  measures  to  reduce  the  vulnerability  of  their 
property.  If  the  premium  fairly  reflects  the  level  of  risk,  accompanied  with  risk-appropriate 
discounts  for  insured  persons  who  invest  in  loss  reduction,  it  motivates  them  to  take  risk 
reduction  measures.  However,  often  the  cost  of  ex-ante  risk  reduction  for  individuals  is  not 
economic,  compared  to  simply  insuring  against  the  risk,  or  taking  community-level  risk 
prevention  measures.  If  insurance  premiums  reflected  the  real  risks,  high  risk  behaviour 
would  be  prohibitively  expensive.  The  respective  roles  of  the  public  and  private  sector  in 
taking risk prevention action should, therefore, always be considered. 
According to established case-law, insurers enjoy the freedom to set insurance premiums20.  
Risk-based  pricing21  necessitates  a  sophisticated  underwriting  process.  It  requires  a  high 
degree  of  information  and  implies  administrative  costs  for  insurers.  Risk-based  pricing  can 

20 

21 

Case C-59/01, Commission v Italy [2003] ECR I-1759. In Case C-347/02, Commission v France [2004] 
ECR I-7557, the Court clarifies that a system where insurers remain free to set the amount of the basic 
premium is compatible with the principle to set insurance premiums. In Case C-518/06, Commission v 
Italy  [2009]  ECR  I-3491,  the  Court  further  explains  that,  if  national  legislation  outlines  a  technical 
framework within which insurers must calculate their premiums, such a restriction on the freedom to set 
rates is not prohibited by the Third Non-life Insurance Directive 92/49/EEC. 
According  to  the  Joint  Research  Centre  (2012),  risk-based  premiums  are  not  extensively  adopted,  as 
they are systematically used in only six Member States for flood, in five Member States for storm and 
in four Member States for earthquake insurance. 

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deter people from living in risk-prone areas, or necessitate public intervention. Differentiation 
of premiums according to risk also involves administrative costs  but is likely to save future 
claims since the premiums stimulate disaster risk reduction. 

Risk-based  pricing  can,  however,  penalise  certain  high-risk  groups.  There  may  be  risks  that 
are uninsurable or risks that would necessitate an increased or unaffordable level of premium. 

Private responsibility for disaster risks may also play a role in providing market incentives for 
individual  loss-prevention  measures  and  in  discouraging  development  in  high-risk  areas. 
Fundamental  issues  of  equity  and  social  solidarity  arise  when  responsibility  is  attributed, 
especially in poor and vulnerable regions. 

Public  authorities  may  decide  to  impose  the  use  of  community-rated  or  flat-rate  insurance 
premiums, which result in cross-subsidisation from people living in low-risk areas. The rating 
may  increase  the  relative  take-up  rate  among  consumers  from  risk-prone  areas.  However, 
such rating exacerbates land use externalities: with flat-rate premiums, insured persons do not 
pay for the risk they generate by living in exposed areas. All permitted locations represent the 
same  insurance  costs  for  households.  Combining  solidarity  with  strict  building  restrictions 
and standards partially corrects the imperfect internalisation of risk and increases efficiency. 
The  insurance  rating  can  also  differentiate  between  risk  zones  as  a  partial  recognition  of 
different levels of risk. 

Questions 

(6) 

(7) 

(8) 

Could  risk-based  pricing  motivate  consumers  and  insurers  to  take  risk  reduction 
and management measures? Would the impact of risk-based pricing be different if 
disaster  insurance  was  mandatory?  Do  insurers  in  general  adequately  adjust 
premiums following the implementation of risk prevention measures? 

Are  there  specific  disasters  for  which  flat-rate  premiums  should  be  suggested? 
Should flat-rate premiums be accompanied by caps on pay-outs? 

What  other  solutions  could  be  offered  to  low-income  consumers  who  might 
otherwise be excluded from disaster insurance products? 

3.2. 

Long-term disaster insurance contracts 

Natural disaster risks are, in principle, covered by annual contracts. Annual contracts provide 
flexibility  and  choice;  consumers  may  regularly  switch  between  competing  insurers  and 
products. 

A long-term insurance contract with transparent risk-based pricing and premium discounts for 
risk reduction could strengthen economic incentives by making investment in risk reduction 
beneficial  to  both  contracting  parties  (insurer  and  insured).  A  long-term  contract  at  a 
guaranteed price, or a price with pre-defined conditions for price ceilings, or regular inflation 
adjustments,  could  provide financial and contractual certainty for the  insureds. It could  also 
drive down the administrative and transaction costs for both parties as the contracts would not 
need to be renegotiated each year. 

There  may,  however,  be  a  greater  uncertainty  and  ambiguity  about  the  underlying  risks.  It 
seems that the annual insurance premium of a multi-year contract is likely to be greater than 
the  premium  of  an  equivalent  annual  contract.  Consequently,  the  capital  requirements  and 
return  on  capital  demanded  by  investors  would  also  be  higher.  On  the  other  hand,  under 
Solvency II, long-term insurance contracts increase the insurer’s capital because the expected 
profit over the full term of the contract is recognised at the outset. 

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Insurers  currently  offer  long-term  life  assurance  or  health  insurance  contracts.  It  is  not  yet 
clear,  however,  whether  property  insurance  can  be  long-term  whilst  providing  cover  at  an 
affordable price. 

Questions 

(9) 

Is  there  a  case  for  promoting  long-term  disaster  contracts?  What  would  be  the 
advantages/drawbacks for insurers and the insured persons respectively? 

3.3. 

Pre-contractual and contractual information requirements 

Consumers need to clearly understand what type of cover they have, how it would operate in 
the event of a disaster and that their policy deals with unusual impacts, not everyday losses. 
The recent research undertaken by the Joint Research Centre suggests that consumers do not 
tend  to  purchase  disaster  insurance  against  low-probability  and  high-severity  events22.  The 
current  challenging  financial  position  of  many  households  in  several  Member  States  is  also 
likely to act as a disincentive for the purchase of disaster insurance. 
Unlike  the  Life  Assurance  Directive  2002/83/EC23,  the  First,  Second  and  Third  Non-life 
Insurance Directives 73/239/EEC24, 88/357/EEC,25 92/49/EEC26 do not contain any rules on 
pre-contractual and contractual information for policy holders. Neither does the Solvency II 
Directive 2009/138/EC27 include such rules for non-life insurance risks. 

In the non-life insurance sector, therefore, information requirements on insurers with a view 
to  protecting  consumers  vary  greatly.  It  is  pivotal  to  increase  consumer  confidence  by 
providing  clear  rules  and  eliminating  legal  uncertainties.  An  insurance  market  with  well-
informed  consumers  forces  insurers  to  compete  to  attract  and  retain  them.  Harmonised  pre-
contractual  and  contractual  information  requirements  would  also  enhance  consumer 
confidence  and  encourage  the  consumer  to  purchase  safely  throughout  the  whole  European 
Union. 

Questions 

(10) 

Do  you  think  there  is  a  need  to  harmonise  pre-contractual  and  contractual 
information  requirements  at  EU  level?  If  so,  should  the  approach  be  full  or 
minimum harmonisation? What requirements concerning the commitment should 
be included, for instance: 

22 
23 

24 

25 

26 

27 

Joint Research Centre (2012). 
Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning 
life assurance (OJ L 345, 19.12.2002, p. 1). 
First  Council  Directive  73/239/EEC  of  24  July  1973  on  the  coordination  of  laws,  regulations  and 
administrative provisions relating to the taking-up and pursuit of the business of direct insurance other 
than life assurance (OJ L 228, 16.8.1973, p. 3). 
Second  Council  Directive  88/357/EEC  of  22  June  1988  on  the  coordination  of  laws,  regulations  and 
administrative  provisions  relating  to  direct  insurance  other  than  life  assurance  and  laying  down 
provisions  to  facilitate  the  effective  exercise  of  freedom  to  provide  services  and  amending  Directive 
73/239/EEC (OJ L 172, 4.7.1988, p. 1). 
Council  Directive  92/49/EEC  of  18  June  1992  on  the  coordination  of  laws,  regulations  and 
administrative provisions relating to direct insurance other than life assurance and amending Directives 
73/239/EEC and 88/357/EEC (third non-life insurance Directive) (OJ L 228, 11.8.1992, p. 1). 
Directive  2009/138/EC  of  the  European  Parliament  and  of  the  Council  of  25  November  2009  on  the 
taking-up  and  pursuit  of  the  business  of  Insurance  and  Reinsurance  (Solvency  II)  (OJ  L  335, 
17.12.2009, p. 1). 

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– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

the nature of the insured risks, 

adaptation and prevention measures to minimise the insured risks, 

features  and  benefits  (such  as  compensation  of  full  replacement  costs,  or 
depreciated, time value of assets), 

exclusions or limitations, 

details for notifying a claim, for instance, if both the loss and its notification 
must fall within the contract period, 

who and to what extent bears the costs of investigating and establishing the 
loss, 

contractual effects of a failure to provide relevant information by the insurer, 

the remedies, costs and procedures of exercising the right of withdrawal, 

contract renewals, 

complaints handling? 

3.4. 

Insurance terms and conditions 

Moral  hazard  corresponds  to  a  behavioural  change  of  the  individual  who,  once  insured,  has 
fewer incentives to prevent a loss from occurring and, therefore, the negative impacts of the 
insured  event  may  be  more  likely  to  arise.  This  would  be  exacerbated  if  there  were  no 
mechanism to reflect the losses in subsequent premiums.  

To  reduce  the  effects  of  moral  hazard,  different  kinds  of  insurance  terms  and  exclusions  – 
designed to instil risk-mitigating behaviour – are employed as part of insurance contracts. 

Deductibles or excesses oblige insured parties to cover a portion of the loss themselves as a 
given  amount  is  deducted  from  the  claim  amount.  The  reasons  for  having  them  are  to 
eliminate  small  claims.  Co-insurance  is  an  arrangement  where  the  loss  is  shared  by  the 
insured and the insurer on a prescribed percentage basis. Contracts may also include coverage 
limits  (either  an  upper  limit,  or  exclusion  of  certain  vulnerable  items,  e.g.,  weak 
constructions).  

The  above  described  contractual  arrangements  may  go  beyond  the  ability,  control  or 
responsibility of the insured party and may not be appropriate or effective to encourage risk-
reducing  measures.  Also,  if  increases  in  deductibles,  excesses  and  co-insurance  are  used  to 
deal  with  additional  disaster  risks,  low-income  insured  persons  claiming  compensation  for 
‘insignificant’ damage may be affected.  

Questions 

(11) 

Do  deductibles,  excesses  co-insurance  and  other  exclusions  effectively  prevent 
moral  hazard?  What  alternative  terms  and  conditions  could  be  appropriate  for 
disaster insurance, given that the insured party may be unable to take effective risk 
reduction measures against a disaster? 

3.5. 

Data, research and information 

Before  insurers  offer  coverage  against  an  uncertain  event,  its  probability  and  consequences 
must be identified and quantified. If it were certain or nearly certain that a particular loss in a 
particular period and region would occur, the risk element would be absent and, therefore, not 

EN 

15 

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insurable.  Extremely  low-frequency  events  may  also  be  considered  hardly  insurable  or 
uninsurable in their totality since insurers may lack data to correctly assess the risks. 

The information asymmetry between the insured and the insurer determines the underwriting 
process. Insurers need to obtain adequate information to correctly define risk groups to avoid 
adverse  selection.  If  proper  information  about  the  risk  is  missing,  risk-based  premiums  are 
difficult  to  calculate.  The  general  lack  and  ambiguity  of  data  is  a  hurdle  to  the  further 
development of disaster insurance. 

Better  information  would  help  to  reduce  uncertainty.  Public-sector  agencies  could  provide 
stakeholders,  including  insurers,  with  affordable  access  to  reliable  and  precise  data  on  past 
and future natural hazards, e.g., as a public good from national meteorological offices, flood 
management agencies or disaster observatories. 

For  researchers  and  public  sector  agencies,  such  as  flood  management  agencies,  it  is 
important  to  have  improved  access  to  key  technologies  and  networks,  availability  of  skilled 
staff as well as access to and comparability of data on insured (and non-insured) losses from 
past  disasters.  This  will  help  improve  research  on  the  impacts  of  past  and  future  natural 
hazards and can help improve disaster risk management strategies and action developed and 
implemented  by  public-sector  agencies.  Comparable  aggregate  loss  data  collected  from  the 
insurance  industry  (including  visualisation  tools  or  risk  information  platforms)  can  also  be 
shared with public sector agencies as well as the private sector to improve risk assessment.  

Consumers also face barriers. One of these is poor or no information - lack of awareness of 
the  real  risks  could  mean  that  an  individual’s  perceived  risk  differs  from  their  actual  risk. 
Many  individuals  perceive  the  probability  of  a  disaster  causing  damage  to  their  property  as 
being  sufficiently  low  that  they  cannot  justify  investing  in  mitigation.  In  making  decisions 
that involve cost outlays, consumers need to take into account the potential benefits of making 
the investment over a longer period of time. Hazard and risk information in an easily readable 
format, such as mapped hazards or risk information for a defined area, or as a risk matrix or 
risk curve showing possible events and their likelihood, expected impacts, and exposure level, 
can  educate  and  raise  awareness  among  consumers.  Climate  and  weather-related  risk 
disclosure  is,  therefore,  necessary  as  it  allows  investors  and  consumers  to  incorporate 
additional  information  into  their  investment  and  purchasing  decisions.  In  addition  to  better 
information and greater access to data, a higher level of standardisation of data (e.g., common 
definitions) would increase the quality of the analyses. 
The European Climate Adaptation Platform (CLIMATE-ADAPT)28 could be used to collect 
and  make  available  information  on  weather-related  insurance  schemes  or  risk  assessment 
approaches in Member States. Another approach could be to provide this information as part 
of a comprehensive package of information on disaster management. 

Insurers could develop guidance for decision makers and project developers and managers on 
how  to  use  insurance  to  support  adaptation  and  disaster  management.  The  guidance  could 
include  a  description  of  how  to  use  insurance  in  the  risk  management  strategy,  i.e.,  how  to 
quantify and define which risks can be prevented and how and which ones could be insured in 
a  cost  effective  manner.  This  would  improve  the  overall  economic  efficiency  of  policy 
making, planning and project management. 

28 

http://climate-adapt.eea.europa.eu/  

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Questions 

(12) 

(13) 

(14) 

How  could  data  on  the  impacts  of  past  disasters  be  improved  (e.g.,  by  using 
standard formats; improved  access  to  and  comparability  of  data  from  insurers  and 
other organisations)?  

How could the mapping of current and projected/future disaster risks be improved 
(e.g.,  through  current  EU  approaches  in  flood  risk  mapping  under  the  Floods 
Directive  2007/60/EC,29  civil  protection  cooperation30  and  promotion  of  EU  risk 
guidelines31)? 

How  could  better  sharing  of  data,  risk  analysis  and  risk  modelling  methods  be 
encouraged? Should the available data be made public? Should the EU take action 
in  this  area?  How  can  further  dialogue  between  insurance  industry  and  policy-
makers be encouraged in this area? 

3.6. 

Promoting  risk  financing  initiatives  as  part  of  EU  development  cooperation 
policy 

Globally,  insurance  plays  a  key  role  in  helping  countries  and  regions  that  are  particularly 
vulnerable to disasters to create effective financial contingency mechanisms to cope with the 
increasing economic costs of disasters and global shocks. 

Alternative,  simplified  risk  transfer  tools  such  as  micro-insurance  products  are  being 
developed  in  developing  countries.  Parametric  insurance  programmes,  supported  by  the 
Commission, have also been implemented in third countries which are particularly exposed to 
weather and catastrophic risks such as droughts, earthquakes, and storms.  

Particular  attention  should  be  given  to  strengthening  cooperation  with  key  international 
partners  (e.g.,  the  World  Bank,  the  International  Finance  Corporation)  and  increasing  the 
Union's  external  support  for  developing  countries  to  develop  innovative  risk  financing 
solutions through insurance, re-insurance or catastrophe bonds.  

The  Commission  has  recently  proposed  to  develop  an  action  plan  on  steps  to  be  taken  to 
enhance resilience in developing countries, encompassing also innovative approaches to risk 
management, and scale up existing good practices in this area32. 

Questions 

(15) 

How can the Union most effectively help developing countries to create solutions 
for  financial  protection  against  disasters  and  shocks  and  what  should  be  the 
priority  actions?  What  types  of  partnerships  with  the  private  sector  and  the 
international institutions should be pursued for this purpose? 

29 

30 

31 

32 

Directive  2007/60/EC  of  the  European  Parliament  and  of  the  Council  of  23  October  2007  on  the 
assessment and management of floods risks (OJ L288, 6.11.2007, p. 27). 
Proposal  for  a  Decision  of  the  European  Parliament  and  the  Council  on  a  Union  Civil  Protection 
Mechanism COM(2011)934 final. 
Commission  Staff  Working  Paper  "Risk  Assessment  and  Mapping  Guidelines  for  Disaster 
Management" (SEC(2010) 1626 final). 
For example the Caribbean Catastrophe Risk Insurance Facility (€12.5 million), and the Global Index 
Insurance Facility (€24.5 million). 

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17 

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4. 

MAN-MADE DISASTERS 

Industrial  hazards  also  evolve,  not  only  due  to  technological  advances,  but  also  due  to 
evolving natural hazards. Natural hazards and disasters can cause ‘natech’ accidents. Natural 
and man-made disasters can be combined or can mutually aggravate each other. 

Environmental liability and losses from industrial accidents 

4.1. 
The  Environmental  Liability  Directive  2004/35/EC33  encourages  but  does  not  oblige 
industrial  operators  to  hold  appropriate  financial  security  in  order  to  remedy  environmental 
damage  as  the  result  of  their  activities.  The  Commission  may  re-examine  the  option  of 
mandatory  financial  security  during  the  review  of  the  Directive  planned  for  2014  in 
conjunction with the Commission Report under Article 18(2) of the Environmental Liability 
Directive 2004/35/EC34. However, the Directive does not cover environmental damage caused 
by "a natural phenomenon of exceptional, inevitable and irresistible character." Nor does the 
Directive  cover  damage  to  the  environment  caused  by  a  prescribed  action  with  the  aim  of 
protecting against a natural disaster. 

Insurance is one of the ways to obtain financial security. However, the products often do not 
cover the full range of liabilities under the Directive and in practice they do not provide for 
unlimited  coverage.  It  also  remains  difficult  for  insurers  to  develop  specific  products  as 
information  on  damage  incidents  and  the  resulting  remediation  costs  is  not  yet  widely 
available35. Industrial operators could also be unaware of possible magnitude of damages.  

Questions 

(16)  What  are  the  most  important  aspects  to  look  at  when  designing  financial  security 

and insurance under the Environmental Liability Directive 2004/35/EC?  

(17) 

Are  there  sufficient  data  and  tools  available  to  perform  an  integrated  analysis  of 
relevant and emerging industrial risks? How can data availability, sharing and tool 
transparency  be  ensured?  How  can  co-operation  between  insurers,  business  and 
competent authorities be strengthened to improve the knowledge base of liabilities 
and losses from industrial accidents? 

4.2. 

Third-party nuclear liability insurance 

Article  98  of  the  Euratom  Treaty  stipulates  that  Member  States  are  to  ‘take  all  measures 
necessary  to  facilitate  the  conclusion  of  insurance  contracts  covering  nuclear  risks’.  Legal 
coherence in the European Union is needed to reduce moral hazard, tackle victim protection 
in  different  Member  States  and  the  impact  on  the  functioning  of  the  internal  market  due  to 
diverging  financial  liabilities  of  nuclear  operators,  which  may  give  rise  to  a  distortion  of 
competition. 

There are currently many different rules on nuclear third-party liability within the European 
Union.  Most  EU-15  Member  States  base  their  provisions  on  the  Paris  Convention  on  Third 
Party  Liability  in  the  Field  of  Nuclear  Energy  and  the  Brussels  Supplementary  Convention 

33 

34 

35 

Directive  2004/35/EC  of  the  European  Parliament  and  of  the  Council  of  21  April  2004  on 
environmental  liability  with  regard  to  the  prevention  and  remedying  of  environmental  damage  (OJ  L 
143, 30.4.2004, p. 56). 
Report  from  the  Commission  under  Article  14(2)  of  Directive  2004/35/CE  on  the  environmental 
liability  with  regard  to  the  prevention  and  remedying  of  environmental  damage  (COM(2010)  0581 
final). 
COM(2010) 0581 final and http://ec.europa.eu/environment/legal/liability/index.htm. 

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under the auspices of the Organisation for Economic Cooperation and Development (OECD). 
However, most EU-12 Member States are party to the Vienna Convention on Civil Liability 
for Nuclear Damage under the auspices of the International Atomic Energy Agency (IAEA). 
Some Member States are not party to any Convention on nuclear liability. The Commission 
has, therefore, recently suggested taking a European approach on nuclear liability regimes36. 

Insurance against nuclear accidents is currently organised in national insurance pools (or by a 
national  operators’  pool).  Insurers  may  find  it  difficult  to  insure  nuclear  operators  beyond 
certain limited amounts, for certain categories of damage (e.g., environmental damage) or for 
long prescription periods (e.g., 30 years for damage to life and health). National insurance or 
operators’ pools are also the first contact point for victims of a nuclear accident.  

The Commission is currently further analysing this issue and will launch a public consultation 
shortly.  Based  on  the  outcome  of  this  analysis,  the  need  for  further  steps,  aiming  at  the 
improvement of victim compensation in case of nuclear accidents and at reducing differences 
in insurance amounts for nuclear power plants in different Member States, will be determined. 

Offshore oil and gas operators' liability insurance 

4.3. 
The  Hydrocarbons  Licensing  Directive  94/22/EC37  defines  the  conditions  for  granting  and 
using  authorisations  for  the  prospection,  exploration  and  production  of  hydrocarbons.  The 
Directive also introduces objective and non-discriminatory financial capacity requirements for 
the  operating  entities.  These  requirements  set  out  the  general  principles  to  ensure  fair 
competition  at  the  licensing  stage,  but  without  focus  on  risk  management,  safety  or 
environmental  protection.  The  Commission  has,  therefore,  proposed  further  requirements 
concerning  the  risk  management,  environmental  liability  and  the  financial  capabilities  of 
licensees and operators38. 

Offshore oil and gas industry has developed different options for ensuring and demonstrating 
sufficient and adequate financial capabilities. These mechanisms take various forms ranging 
from  private  and  self-insurances  to  safety  mechanisms  such  as  the  Offshore  Pollution 
Liability Association (OPOL)39 scheme in the North East Atlantic area. Initial consultations 
with  the  offshore  oil  and  gas  industry  and  insurers  suggest  that  there  is  currently  no  option 
that  would  be  universally  suitable  for  all  oil  and  gas  operators.  It  seems  that  insurance 
products  in  the  European  Union40  cannot  provide  coverage  for  the  major  multi-billion  euro 
accidents41.  It  also  appears  that  larger  operators  might  favour  and  be  able  to  afford  self-
insurance through a captive entity whereas smaller operators might be financially restrained 
from implementing this solution. 

36 

37 

38 

39 
40 

41 

Communication from the Commission "Energy 2020 A strategy for competitive, sustainable and secure 
energy"  (COM(2010) 0639  final);  Communication  from  the  Commission  on  the  interim  report  on  the 
comprehensive  risk  and  safety  assessments  ("stress  tests")  of  nuclear  power  plants  in  the  European 
Union (COM(2011) 0784 final), Communication from the Commission on the comprehensive risk and 
safety assessments ("stress tests") of nuclear power plants in the European Union and related activities 
(COM(2012) 571 final). 
Directive 94/22/EC of the European Parliament and of the Council of 30 May 1994 on the conditions 
for granting and using authorizations for the prospection, exploration and production of hydrocarbons 
(OJ L 164 , 30.06.1994, p. 3); see also http://ec.europa.eu/energy/oil/licensing_en.htm. 
Proposal for a Regulation of the European Parliament and of the Council on safety of offshore oil and 
gas prospection, exploration and production activities (COM(2011) 0688 final). 
http://www.opol.org.uk/  
In the Gulf of Mexico insurance coverage up to 10 B$ for sudden oil spills is now available. In other 
parts of the world traditional offshore insurances provide coverage up to 1-2 B $. 
The  Commission  is  conducting  a  study  exploring  the  feasibility  of  creating  a  fund  to  cover 
environmental liability and losses occurring from industrial accidents.  

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Hence  there  is  no  "one  size  fits  all"  approach  to  risk  financing  in  this  sector.  The  current 
internal  and  external  solutions  offered  to  cover  these  types  and  magnitudes  of  risk  are  still 
nascent. However, some actors in the financial and insurance markets are swiftly innovating. 
The questions remain as to the adequacy and appropriateness of these mechanisms and how 
the  offshore  oil  and  gas  sector  would  react  and  use  potential  new  insurance  products  (e.g., 
operation  specific  products).  The  financial  strength  of  the  offshore  oil  and  gas  operator  is  a 
key  driver  to  decide  which  mechanisms  would  be  most  appropriate.  Regardless  of  the 
approach  chosen,  the  solution  should  comprehensively  take  into  account  possible  moral 
hazards and guarantee the polluter pays principle. 

Questions 

(18) 

Considering  the  specificities  of  the  offshore  oil  and  gas  industry,  what  kind  of 
innovative  insurance  mechanisms  could  be  appropriate?  Are  there  ways  for  the 
insurance industry to reduce the uncertainty regarding the assessment of risks and 
calculation of premiums? What type of information should be publicly available to 
promote the development of insurance market products to cover major accidents? 

4.4. 

Information rights of victims of man-made disasters 

Losses  resulting  from  natural  disasters  are  covered  by  first-party  insurance;  while  damages 
from man-made disasters covered by third-party liability insurance. The first type is normally 
taken out by individual property owners, the latter by individual industrial companies. 

If the insured party becomes liable to a third party, ordinarily the injured third party would be 
able  to  contact  the  liable  party,  and,  consequently,  that  liability  would  be  covered  by  the 
insurer. Claims handling could, however, be more pragmatic: the injured party could make a 
direct  claim  against  the  insurer.  To  make  that  possible,  the  injured  party  should  have  a 
disclosure  right  against  the  insured.  Insured  parties  could,  therefore,  be  required,  by  law,  to 
provide detailed information about their insurance coverage. 

Under  the  Environmental  Liability  Directive,  any  natural  or  legal  person  can  submit  to  the 
competent authority information and observations about environmental damage resulting from 
a  man-made  disaster,  and  request  remediation  action.  Subsequently  the  competent  authority 
shall  inform  such  persons  of  the  actions  taken,  or  may  refuse  to  take  action  but  state  the 
reasons  why42.  This  information  and  observations  may  include  data  on  the  costs  of  the 
damage,  insurance  available  to  fund  the  repair  and  so  on.  The  recently  adopted  Seveso  III 
Directive 2012/18/EU43 obliges operators to include in their safety reports a description of any 
technical  and  non-technical  measures  relevant  for  the  reduction  of  the  impact  of  a  major 
accident.  Information  on  insurance  could  also  be  included.  The  Directive,  furthermore, 
provides that the safety report is to be made available to the public upon request. 

Questions 

(19) 

Should contractual conditions of third-party liability insurance policies be disclosed 
to third parties in case of man-made disasters? If so, how? 

42 
43 

See Article 12 of Directive 2004/35/EC. 
Directive 2012/18/EU of the European Parliament and of the Council of 4 July 2012 on the control of 
major-accident hazards involving dangerous substances, amending and subsequently repealing Council 
Directive 96/82/EC (OJ L 197, 24.7.2012, p. 1). 

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5. 

LOSS ADJUSTING 

The  activities  and  profession  of  loss  adjusters  are  currently  excluded  from  the  scope  of  the 
Insurance Mediation Directive 2002/92/EC44. The proposed revision of the Directive45 brings 
them under its scope and establishes a simplified procedure of supervision. 

Loss adjusting in the wake of a disaster requires swift and coordinated action. The capacity to 
deal  quickly  with  a  substantial  number  of  claims  and  claimants,  many  of  whom  may  have 
suffered personal physical injury, is crucial. Loss adjusting related to cross-border man-made 
disasters  has  an  additional  dimension  since  it  is  a  matter  for  the  liable  person’s  insurance 
company or its representatives, which are, by definition, established in another Member State. 

Questions 

(20) 

Are  there  specific  aspects  of  loss  adjusting  which  would  benefit  from  more 
harmonisation?  If  so,  which?  Are  there  practical  difficulties  for  loss  adjusters  to 
operate cross-border? 

6. 

GENERAL REMARKS 

Question 

(21) 

This  paper  addresses  specific  aspects  related  to  the  prevention  and  insurance  of 
natural and man-made disasters. Have any important issues been omitted or under-
represented? If so, which? 

7. 

WHAT ARE THE NEXT STEPS? 

The Commission invites stakeholders to comment on all the issues set out in this Green Paper 
and to respond to any or all of the above questions. 

On  the  basis  of  the  outcome  of  this  consultation,  the  Commission  will  decide  on  the  best 
course  of  action  to  take  on  the  issues  outlined  in  this  Green  Paper,  including  legislative 
measures, as appropriate. 

The responses received will be available on the Commission website, unless confidentiality is 
specifically  requested,  and  the  Commission  will  publish  a  summary  of  the  results  of  the 
consultation. 

Stakeholders are invited to send their comments before 30 June 2013 to the following email 
address: markt-consultation-disasterinsurance@ec.europa.eu. 

44 

45 

Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance 
mediation (OJ L 9, 15.1.2003, p. 3). 
Proposal for a Directive of the European Parliament and of the Council on insurance mediation (recast) 
(COM(2012) 360 final). 

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