When it comes to extreme climate events, Europe suffers from a wide insurance protection gap, with a range of 50-75% of economic losses not being covered, as revealed by the European Insurance and Occupational Pensions Authority (EIOPA) in April.

This is a problem, considering that disasters like heatwaves, fires, storms, and floods are becoming both more frequent and more severe. Between 2021 and 2024, extreme climate events caused a total loss of €200 billion to EU member states. Southern and Western European countries are historically the most exposed to climate-related losses.

Increasing risks and rising costs are making European properties uninsurable, meaning insurance is either unavailable or unaffordable. This is the case in Poland and Portugal, where flood insurance premiums in high-risk areas are so high that literally no one can afford them.

“For households, this protection gap means that a single climate shock can lead to long‑term financial hardship,” said Petra Hielkema, EIOPA chairperson, in a public speech. This was evident in Romania's 2022 drought: insurance covered just 5% of the damage and the government another 8%, leaving households and firms to absorb €191 billion in uncovered costs.

Heather Grabbe, senior fellow at Bruegel, a Bussels-based think tank, explained to us: “This causes a lot of pain for people who may have all of their savings wiped out, but it also has an impact on the wider economy.” People spending less hurts the economy, while unpaid loans strain the financial sector. “The greatest impact may not happen at the time of the disaster, but several years later.”

Take last summer's droughts, heatwaves, and floods: they caused a €43 billion short-term loss in the value of goods and services produced in the EU, but research projections estimate that the annual loss due to climate disasters in the EU could amount to €126 billion by 2029.

Even if governments covered all the damage costs themselves – which depends on each state's resources and procedures – this would squeeze the budget for adaptation investment (for reducing the impact of the next event), making future disasters even costlier.

So, what can be done about it? Experts recommend more accurate risk assessments, and insurance that rewards people for adapting in advance, for example by discounting the premium if someone has made their house heat-proof.

“European governments need to act now to manage the risk much better, to spread the burden, and also to spread the cost of adaptation investments,” Grabbe explained.

The EIOPA suggests EU-wide risk-sharing. The idea would be to create a coordinated pool for insurers to spread their risks across different countries and hazards, so that they don't have to fear all of their clients claiming coverage at the same time after a disaster. This would allow them to offer lower prices and to cover more high-risk areas. But Insurance Europe warned this would only work if climate disasters stay contained within one country.

For the ordinary taxpayer, Grabbe told us, prevention is key to avoid having to pay up after a disaster: “You can try to adapt your house, but also get involved with your local community to make sure there are fire plans and flood plans in place.”