Broadening the scope of risk sharing through a European backstop for natural catastrophes

An increased frequency and intensity of climate-related natural catastrophes has created significant challenges for both the private and the public sector. Existing risk-sharing approaches are reaching their efficacy limits, pushing governments to take on an increasing share of the burden as private-sector solutions become less affordable or available. This paper outlines how adding a European loan-based backstop facility to the risk-sharing hierarchy can contribute to a more efficient solution and why it may enhance private insurers' risk-taking capacity. We elaborate on the mechanics of such an approach and show how it could increase private sector insurance capacity without additionally burdening the public.