Safeguarding real estate collateral from natural hazards

11 February 2026

Authors: Ivana Baranović, Georgia Lialiouti, Egle Rocco, Naomi Rolano

Extreme weather events are becoming more frequent and severe, causing significant and growing economic losses. At the same time, research by the European Insurance and Occupational Pensions Agency (EIOPA) shows that only one out of four climate-related losses have been insured so far. This gap in insurance protection varies greatly across EU countries and is likely to widen. The ultimate risk is that climate events might make insurance more expensive and potentially unaffordable for clients.

The EU’s Capital Requirements Regulation requires banks to adequately insure all immovable property used as collateral against damage (Article 208(5)). They should also have in place procedures to monitor the adequacy of the insurance.

To explore the key issues surrounding insurance protection, data collection and monitoring, the ECB recently organised a workshop with EU banks, EIOPA and the Banca d’Italia. This article is based on the discussions that took place, shedding light on banks’ experiences and the challenges they face, and presenting some ideas for improving how insurance data are collected and used.

Insuring real estate collateral of new loans

The workshop revealed that while banks generally require customers to insure the real estate used as collateral for loans, setting this up often presents challenges. For example, insurance policies tend to have a one-year duration, while loans are usually granted for a longer period. So the insurance taken out when a loan is granted cannot cover the loan for its lifetime. Insurance policies can also differ significantly from one another, especially when it comes to how they define which hazards are covered. This makes it hard for customers and banks to know exactly what is protected, if the relevant risks are covered and under what circumstances, which ultimately makes collecting data about insurance more challenging, especially when the insurance products are not directly distributed by banks themselves.

Coverage for residential real estate is usually limited to fire and other types of damage, while natural hazards, like floods, are often not included. In some countries, national schemes are in place to supplement private insurance coverage for natural catastrophes (see a 2024 report by the ECB and EIOPA detailing how such schemes are implemented). Commercial real estate loans, on the other hand, tend to have stricter requirements – for example, more hazards need to be covered, and clients are required to provide updated insurance information. Non-compliance can lead to a loan being rejected. Lastly, data privacy protection rules add a layer of complexity to collecting insurance data, in particular for residential real estate.

Insuring real estate collateral of existing loans

Once a loan is issued, banks need to continue monitoring the adequacy of the insurance and its coverage. While banks try to review insurance policies regularly, mismatches between insurance policies and loan duration can create blind spots in coverage. Also, when insurance policies expire or collateral becomes underinsured, banks typically rely on borrowers to provide updated information. In the case of commercial real estate loans, this information can often be obtained through regular annual reviews, or even directly from the insurance companies.

However, for residential real estate loans the situation is more complex. Depending on the countries and data protection rules in place, it may be challenging to get updated insurance data from clients after the loan is originated. This makes it hard to ensure proper monitoring and adequate coverage.

Considering the challenges involved in collecting reliable data, including after a loan is granted, it is essential that banks have monitoring procedures in place to ensure that immovable properties taken as credit protection are adequately insured against the risk of damage.

Practical examples from banks

During the workshop, some helpful ways of tackling these challenges were identified:

• Banks can develop centralised systems to store insurance data alongside other information on their collateral. These systems facilitate more efficient data management and provide a good overview of insured collateral, making it easier to develop risk indicators for credit risk management.
• Banks can set up monitoring processes to detect or even anticipate coverage expiration or changes in the terms of insurance policies.
• Some banks actively engage with borrowers to request updated insurance data, including possible changes to their insurance coverage and policy conditions.
• Some banks include alternative metrics focused on collateral in their risk scoring systems, alongside traditional indicators like the loan-to-value ratio. Some of these metrics could, for example, be related to the outcome of a physical risk assessment, the availability of adequate insurance and possible defences against relevant hazards.

Ideas for improving availability and monitoring of insurance data

The workshop revealed that EU banks struggle to collect the data they need, in part because insurance policies are not standardised and it is hard to keep track of insurance cover after a loan is given out. Participants also touched upon some proposals which could address, or at least mitigate, these problems. Some banks suggested a national or EU-level database that could help banks and other stakeholders access information on insured properties. Other participants cautioned against this option, highlighting the need to involve the insurance industry in developing such databases and ensure the burden isn’t placed solely on them. Furthermore, insurers and banks could work together more closely, especially to identify ways to improve data sharing or develop new dedicated and standardised products. This would make it easier for banks to assess current and future risks to the insurability of projects at loan origination. Educating borrowers about possible risks and the importance of adequate insurance coverage could also be further supported, including through public initiatives.

Some participants suggested that banks could explore “impact lending”, where borrowers are financially incentivised to make their real estate more resilient to extreme weather events. This could both safeguard collateral value and reduce the insurance protection gap, as lower losses would allow for more affordable and available insurance.

Considering growing economic losses caused by extreme weather events and the widening gap in insurance protection, the ECB recognises that climate change and insurance gaps are leading to a rise in credit risk. That’s why it supports further exploration and collaboration among relevant stakeholders to improve the availability of insurance-related data and improve related practices. The practices outlined above will contribute to the upcoming updated version of “Good practices for climate-related and environmental risk management”, which will be published in line with the planned activities set out in our supervisory priorities.