Climate change threatens natural habitats, exposing insurance gaps and systemic risks

By Abdullahi Lukman

Climate change is increasingly threatening natural habitats across Europe, leading to significant ecological damage and exposing a critical insurance protection gap, the European Central Bank (ECB) warned in its latest financial stability report.

In 2024, natural disasters caused an estimated €30 billion in economic losses, yet less than half—€13 billion—were insured.

This gap highlights how many environmental damages to ecosystems and habitats remain financially unprotected, raising concerns over the resilience of both nature and the economy.

The ECB noted that rising physical risks from climate change—such as floods, storms, and wildfires—are degrading biodiversity-rich habitats and disrupting ecosystems vital for species survival and human well-being.

As damage to natural areas escalates, the value of affected land and assets may drop sharply, triggering financial instability and increasing the burden on public resources.

Experts warn this protection gap could worsen as insurance costs rise due to increasing claims, making coverage unaffordable and leaving vulnerable habitats without adequate financial safeguards.

The ECB called for urgent policy action to close this gap and safeguard both ecological and economic systems.

Marika Carlucci, senior EU policy officer at ShareAction, highlighted that insurers must not only manage physical risks but also address transition risks linked to investments in industries that harm natural environments, such as fossil fuels.

She urged insurers to play an active role in protecting ecosystems and supporting a green transition.

Julia Symon, research head at Finance Watch, described the ECB’s focus on climate-related ecological risks as a crucial wake-up call, stressing that climate impacts on habitats are accelerating and require stronger regulatory support.

Fiona Hauke, researcher at Urgewald, emphasized that beyond assessing risks, institutions like the ECB must deploy tools such as green interest rates and integrate climate considerations into monetary policies to protect natural habitats and promote sustainable development.

The report underlines the urgent need for coordinated efforts across governments, industries, and financial institutions to protect Europe’s ecosystems from the escalating threats of climate change, ensuring the resilience of both natural habitats and the economic systems that depend on them.