The Association of Public Insurers (VöV) welcomes the opportunity to comment on EIOPA’s consultation regarding the prudential treatment of climate adaptation measures under Solvency II. As the second-largest group in the German primary insurance market with strong regional roots, the public insurers are deeply committed to contributing to a resilient and sustainable economy. As market leaders in residential property insurance, the public insurers are directly exposed to natural catastrophe risks and are therefore particularly affected by the physical impacts of climate change.
Climate-related risks are not theoretical considerations but already material drivers of claims development, pricing, reinsurance capacity and long-term insurability. The VöV therefore strongly supports efforts to improve the risk-sensitive treatment of adaptation measures within the Solvency II framework. At the same time, the Association emphasizes that any adjustment of prudential requirements must remain consistent with the core principle of Solvency II: capital requirements must be risk-based, evidence-based and proportionate.
Against this background, we would like to highlight the following general considerations.
General Remarks on Climate Adaptation Measures
Climate adaptation and insurability
limate adaptation must be understood as a system-wide challenge that goes far beyond the insurance sector. While insurers play an important role in covering residual risks and enhancing risk transparency, they cannot substitute for effective prevention and adaptation
enhancing risk transparency, they cannot substitute for effective prevention and adaptation measures. The long-term insurability of natural catastrophe risks depends critically on the extent to which exposure growth is limited and protective measures are implemented.
A resilient framework therefore requires coordinated action across all governance levels. Public authorities are responsible for providing the necessary infrastructure, including flood protection systems and risk-informed spatial planning. At the same time, private actors, including households and businesses, must contribute through individual risk mitigation measures. Without such coordinated action, increasing loss severity and frequency will inevitably translate into higher premiums, reduced underwriting capacity and, ultimately, constraints on insurability.
In this context, it is also important to maintain realistic expectations regarding the role of insurers. Insurance is a complement to risk reduction and cannot compensate for insufficient public prevention policies. A system that relies excessively on ex post compensation mechanisms, including ad hoc state aid, risks weakening incentives for prevention and thereby exacerbating the protection gap.
Limitations of the Standard Formula and need for risk-sensitive approaches
The current Standard Formula for natural catastrophe risks does not adequately reflect the diversity and complexity of real-world risk profiles. Its reliance on typified parameters and relatively coarse geographical classifications limits its ability to capture regional differences, portfolio-specific characteristics and the effects of adaptation measures.
Experience from undertakings indicates that, in particular for flood risks, the Standard Formula may not fully reflect actual risk characteristics. Differences between internal risk assessments based on catastrophe models and the assumptions embedded in the Standard Formula illustrate this limitation. Adaptation measures such as improved building standards or flood protection infrastructure are not sufficiently captured, while at the same time exposure growth may lead to increasing insured values.
These structural limitations cannot be fully addressed through incremental adjustments. Periodic recalibration can contribute to reflecting long-term developments, but it is inherently slow and cannot capture portfolio-specific characteristics. Similarly, the introduction of additional parameters would increase complexity and data requirements without necessarily leading to a meaningful improvement in risk sensitivity.
Preferred regulatory approach: USP, risk mitigation and proportionality
Against this background, the VöV considers undertaking-specific approaches, in particular Undertaking Specific Parameters (USP), as the most appropriate and proportionate way to reflect adaptation measures within the existing Solvency II framework. USP allow insurers to incorporate more granular information, including detailed exposure data and catastrophe model outputs, thereby improving the alignment between regulatory capital requirements and actual risk profiles.
In addition, it is essential to recognise that risk mitigation in insurance practice extends beyond traditional instruments such as reinsurance. Contractual features such as deductibles, limits on maximum payouts and coverage conditions are integral elements of insurers’ risk management. These mechanisms directly influence the loss distribution and significantly reduce exposure to extreme events. From a prudential perspective, they should therefore be considered when assessing the impact of adaptation measures.
At the same time, proportionality and feasibility must remain key guiding principles. The recognition of adaptation measures requires reliable data and consistent methodologies, but data availability remains limited in many areas. Any regulatory approach must therefore avoid excessive complexity and disproportionate reporting burdens. In particular, reliance on internal models should not become the primary mechanism, as this would disadvantage smaller undertakings and undermine the level playing field within the Solvency II framework.
You can download the detailed statement including specific responses to selected questions here!
