From Tilak´s Substack’

By Tilak Doshi

Kurt Vandenberghe, the European Commission’s Director-General for Climate Action, put the new orthodoxy in a single sentence this month. Posting after a round table with Europe’s insurers on closing the “climate protection gap”, he declared that “insurance as usual will not be sustainable”. Climate policy, he argued, is now effectively insurance policy too: whatever risk insurers decline to cover becomes uninvestable. According to Vandenberghe, a widening protection gap threatens a looming financial-stability problem for the whole European Union.

In April, the Financial Times pushed the same idea, reporting that EU insurance, pensions and financial regulators want a Brussels-backed fund of €10 billion–€65 billion for natural and climate disasters “to close the bloc’s insurance gap for floods, wildfires, heatwaves and storms”. The figures behind the pitch are stark: only €4.5 billion of the €11 billion in losses from the 2024 Valencia floods were insured; only €13 billion of the €51 billion in losses from the 2021 Ahr valley floods were covered. Natural catastrophes, the regulators said, caused more than €900 billion in damage across the EU between 1981 and 2024 – “only a fraction” of it insured.

Brussels has decided that Europe’s storms and bad weather need a new bureaucracy. The Financial Times report drew on a joint discussion paper published that same day by the European Insurance and Occupational Pensions Authority. It proposed a continent-wide natural catastrophe insurance pool, backed by a loan facility of up to €65 billion, that would supposedly shrink Europe’s “insurance protection gap” from roughly 75% to about 10%. The pool would be financed by risk-based premiums backstopped, ultimately, by the EU’s own credit.

Spain did not wait long to raise the stakes. In a letter to Climate Commissioner Wopke Hoekstra sent on September 2nd 2026, Madrid’s ecological transition ministry proposed a permanent European Climate Adaptation Fund financed by a tax on oil and gas company profits, common EU debt instruments and a public-private reinsurance system issuing “climate risk bonds”. Madrid’s own tally: €822 billion in weather and climate losses across the EU since 1980, with roughly a quarter of that concentrated in just the four years from 2021 to 2024.

Both proposals share the same unstated premise that ordinary weather insurance has failed, and that only a new instrument bearing the word ‘climate’, underwritten by Brussels, can keep Europe insurable. That premise is a category error. It has been made before – by central bankers reaching for ‘climate stress tests’, by ESG fund managers pricing transition risk that never materialised, and now by insurance regulators. Each time, we see the same conflation of routine, priceable risk with manufactured systemic crisis. Each time, the same remedy: more Brussels, less market.

The EU is not starting from zero. The existing EU Solidarity Fund has paid out €8.6 billion since its creation in 2002, across 130 disasters – a modest, largely uncontroversial mechanism for the genuinely catastrophic tail risk. What is being proposed now is something categorically larger: a standing, EU-guaranteed insurance pool for ordinary annual weather losses that private and national markets already price and pay for routinely, rebranded as an unavoidable response to a changing climate rather than what it actually is – a transfer mechanism dressed in actuarial language.

A category error

What households and firms face, and what insurers have priced for centuries, is weather risk – the chance that a specific flood, windstorm, fire or freeze damages a specific asset in a specific place in a specific year. ‘Climate’ is simply the probability distribution that measures the weather: the averages, the tails, and how slowly those tails might shift over decades. As Stanford University economist John Cochrane has argued for more than a decade, a slowly evolving distribution that can be observed, modelled and repriced every year is not a systemic financial surprise. It is the ordinary business of insurance.

Cochrane made the distinction sharpest in his 2021 testimony to the US Senate Banking Committee: “Climate change is an important challenge. But climate change poses no measurable risk to the financial system…. ‘Risk’ means unforeseen events. We know exactly where the climate is going over the horizon that financial regulation can contemplate.” His point about horizons matters. Trouble in 2100, if it materialises, will come from investments made in 2095; supervisors cannot usefully look through 80 years, and treating a century-scale drift as a five-year threat is, in his words, an answer in search of a question – a convenient vehicle for policies that could not otherwise pass ordinary democratic or cost-benefit tests.

None of this requires pretending that weather is stationary. El Niño cycles, the Atlantic Multidecadal Oscillation, land-use change and urban heat islands all move the observed distribution over time, and insurers have always updated their actuarial tables to match. Catastrophe models, reinsurance treaties and catastrophe bonds already transfer tail risk into global capital markets built precisely for that purpose. Dykes, flood barriers, stricter building codes, forestry management and better drainage – the unglamorous business of adaptive practices – have reduced the human and economic toll of weather for generations, largely independent of anything happening to emissions. None of that machinery requires a Brussels-branded relabelling to keep functioning; it requires that insurance premiums be allowed to adjust.

Buffett’s actuarial common sense

Warren Buffett made the identical point in Berkshire Hathaway’s 2015 shareholder letter, responding to a proxy proposal that fretted about climate risk to the insurer’s books. “Insurance policies are customarily written for one year and repriced annually to reflect changing exposures,” he wrote. “Increased possibilities of loss translate promptly into increased premiums.” If catastrophe losses become more frequent or costly, the effect on a well-run insurer is not insolvency but a larger, more profitable book of business – provided prices are allowed to move. Fixed-price, multi-decade policies would be a different matter; that is not how property-casualty insurance works, in Valencia or in Iowa.

That is why the industry regularly accused of ‘failing’ on climate keeps functioning: it reprices weather year by year rather than pretending to underwrite an abstract planetary process called “climate change”. Swiss Re’s own sigma reports show global insured catastrophe losses climbing at a steady 5-7% real annual rate, with reinsurers stepping in to absorb the bulk of losses only in rare ‘peak loss’ years that run far above trend. That is not evidence of a broken market. It is evidence of a market doing exactly what actuarial pricing is designed to do.

The empirical case for treating ‘climate’ losses as a new and exceptional category is weaker than Brussels’s rhetoric suggests. Physicist Steven Koonin’s Unsettled compiles what the observational record and the IPCC’s own assessment reports actually say about extremes, as distinct from what press releases claim. The IPCC assigns low confidence to any long-term global increase in tropical-cyclone frequency or intensity. Global flood and drought trends show no clear, high-confidence signal at the global scale. None of this denies that greenhouse gases warm the planet. What it does deny is that the weather extremes insurers price for have become dramatically less predictable.

Roger Pielke Jr.’s normalisation work tells the same story from the loss side. After adjusting European Environment Agency catastrophe-loss data for 1990-2024 by GDP growth, he finds no long-term trend: direct economic losses from weather and climate events have scaled roughly in proportion with the region’s growing economy, not faster than it. Globally, his earlier analysis found catastrophe losses falling from just under 0.3% of world GDP in 1990 to just under 0.2% by 2019. Even Swiss Re’s own chief economist concedes the underlying mechanism: “economic development continues to be the main driver” of rising insured losses over many decades. More buildings and more wealth sitting in harm’s way, not a broken climate, explains most of the rising bill – and a rising share of that bill is simply previously-uninsured property now being covered, which mechanically inflates the insured-loss total without any change in the underlying hazard.

The protection gap is real – but it is not new, and not uniquely climatic

None of this means Europe’s insurance gap is invented. EIOPA’s own figures show only around a quarter of natural catastrophe losses across the bloc were insured between 1980 and 2024, and the Valencia and Ahr valley figures cited above are typical rather than exceptional. But the gap reflects national differences in insurance take-up, in whether cover is mandatory or voluntary, and in the political reluctance to charge risk-based rates on floodplains and fire-prone hillsides – not a sudden climatic discontinuity that only Brussels can address. Layering a Brussels-level insurance pool on top creates a new constituency that benefits, politically and financially, from calling every flood season or hot summer a climate crisis requiring ‘European solidarity’ rather than a pricing and land-use problem.

The insurance pool does not arrive in isolation. It follows an 88-page OECD study, funded and co-written by the European Commission, instructing De Nederlandsche Bank on how to assess “prudential risk” arising from Dutch banks’ Net Zero commitments – a study this writer criticised in these pages last month. The pattern is consistent: once a regulator is allowed to relabel an ordinary commercial or actuarial question as a matter of ‘climate’, the same logic that turned corporate governance into ESG scorecards and central-bank collateral policy into green industrial strategy takes over. Insurance regulators who cannot distinguish a slowly shifting probability distribution from a genuine 2008-style financial crisis will use ‘climate crisis’ as a licence to direct capital, expand mandates and socialise losses that markets already price.

This is mission creep dressed as prudence. Climate and adaptation policy belongs in legislatures that can weigh costs, benefits and trade-offs in the open, subject to a vote. Insurance belongs with underwriters who live or die by whether this year’s premiums cover this year’s losses plus a return on capital. Confusing the two does not make Europe more resilient to weather; it makes Europe’s insurance market less accountable to the price signal that has, for two centuries, told people where not to build.

Prices, not politics

Adam Smith observed that we do not expect our dinner from the benevolence of the butcher. We should not expect solvent insurance from the benevolence of a European facility that treats every wildfire season or a hot summer as an indictment of capitalism. Ordinary insurance already does what Brussels claims only a new ‘climate’ product could do. It prices flood, wind and fire risk; it transfers tail risk into global capital markets through reinsurance and catastrophe bonds; and it sends an unmistakable signal – through the premium, not the press release – about where not to build, or where to elevate, clear brush or improve drainage. Subsidising that signal away with a Brussels-backed pool does not reduce risk. It socialises the cost of ignoring it and calls the result solidarity.

The storms will keep coming, as they always have. The question Brussels keeps avoiding is whether prices, engineering and private contracts should go on allocating that risk, or whether Europe needs another layer of official climate theology bolted onto a market that has spent two centuries learning how to price rain, wind and fire.

Traditional insurance was never the problem. The attempt to rebrand it as something only Brussels can save us from is.

This article was first published in the Daily Sceptic https://dailysceptic.org/2026/09/16/brussels-is-building-a-climate-protection-racket-in-the-name-of-climate-insurance/

Dr Tilak K. Doshi is the Daily Sceptic‘s Energy Editor. He is an economist, a member of the CO₂ Coalition and a former (cancelled) contributor to Forbes. Follow him on Substack and X.