The European Union must enhance support for farmers by expanding insurance coverage to tackle the escalating climate risks threatening agriculture, according to a recent report by the European Investment Bank (EIB) and the European Commission.
The study warns that annual losses in the EU agriculture sector could surge by up to two-thirds by 2050 due to increased droughts and floods. Currently, extreme weather events cause average yearly losses of €28 billion—approximately 6% of the EU’s crop and livestock production across its 27 member states.
Despite these substantial risks, only 20% to 30% of climate-related agricultural losses are insured through public, private, or mutual schemes, including those backed by EU agricultural subsidies.
“Climate change and its consequences could restrict farmers’ access to finance, as banks could become even more reluctant to take risks than they are today,” said Christophe Hansen, European Commissioner for Agriculture and Food. He called on member states to introduce new financial instruments aimed at protecting farmers and to prioritize climate risk prevention in agriculture.
The report highlights that publicly funded insurance programs often outperform government compensation schemes in mitigating climate-induced losses. However, Jérôme Crugnola-Humbert, chair of the sustainability and climate-related risk committee at the Actuarial Association of Europe, cautioned that insurance has predominantly benefited farmers receiving subsidies linked to intensive farming practices, which contribute to environmental degradation and climate change.
“A key question is not only the amount of insurance but which types of agriculture receive this financial safety net, to avoid perpetuating a harmful cycle,” Crugnola-Humbert emphasized.
The report recommends several measures to help farmers better manage climate shocks, including catastrophe bonds, public-private reinsurance partnerships, and rapid-response disaster funding. While catastrophe bonds could offer innovative risk transfer solutions, their complexity may delay widespread adoption.
Crugnola-Humbert also pointed to parametric insurance—compensation based on weather data rather than physical damage assessments—as a promising alternative. This approach has successfully expanded agricultural insurance in developing regions such as Africa and could complement traditional insurance models in Europe.
He stressed the importance of an EU-level framework aligned with existing national schemes. However, public subsidy limits and antitrust regulations pose challenges to establishing new public-private partnerships critical for affordable climate insurance.
Currently, the EIB supports the agricultural sector with loans, guarantees, and funding for rural infrastructure like irrigation and roads. It also advises on leveraging EU farm grants to attract additional financing that mitigates climate risks.
“Climate-related risks are an increasing source of uncertainty for food production. Mitigating these risks through insurance and de-risking mechanisms is essential to support the investments of European farmers,” stated Gelsomina Vigliotti, EIB Vice-President.
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