Participants: Gesamtverband der Versicherer (GDV), SwissRe, Allianz Agrar, Helmholtz-Zentrum für Umweltforschung (UFZ), Genillard & Co., Bayerisches Staatsministerium für Ernährung, Landwirtschaft und Forsten (StMELF). 

Strategic Framing and Research Imperative

Climate Resilience Dialogue (CRD) in Bavaria and Saxony-Anhalt, held under the auspices of Genilliard & Co. as part of the SOTERIA project, served as a high-level platform for policy and research engagement. It brought together public authorities, agricultural stakeholders, and representatives from the insurance sector across both regions. The dialogue was structured around a critical examination of structural and behavioral drivers, budgetary frameworks, affordability challenges, and emerging innovations in climate insurance design.

Mechanisms for Enhancing Public Budget Allocation Toward Insurance Penetration

The dialogue emphasized that integrating insurance solutions into comprehensive climate adaptation strategies is critical to driving widespread adoption. In Bavaria, the existing multi-peril insurance scheme – supported jointly by the EU and the federal state, provides financial support to farmers through premium subsidies. However, these incentives are currently decoupled from proactive resilience-building efforts. That is, while the scheme helps reduce the cost burden of insurance, it does not support or require the implementation of on-farm risk reduction or adaptation measures. (STMELF, 2025).

Participants proposed several recommendations to improve the effectiveness of public expenditure in supporting climate resilience. A key recommendation focused on introducing conditional subsidies, granted only upon the verifiable implementation of climate adaptation practices by farmers. This approach could be modeled on the points-based evaluation system used in Lower Saxony (Germany), which ties financial support to concrete, measurable adaptation efforts at the farm level (KLARA, 2022). The second recommendation calls for the exploration of European funding instruments to support the establishment of pilot programs for innovative risk-transfer models, with a particular emphasis on leveraging Pillar II of the Common Agricultural Policy (CAP), which focuses on rural development and climate resilience. Pillar II is preferred over Pillar I in this context to avoid potential negative feedback from farmers, as Pillar I payments are more closely linked to direct income support. Redirecting or attaching conditions to Pillar I funds could be perceived as a threat to farmers’ financial stability and provoke resistance, whereas Pillar II offers more flexibility for targeted, incentive-based interventions (EP, 2023). Importantly, such pilot programs should also be aligned with the EU Taxonomy prerequisites, ensuring compliance with sustainability and climate adaptation objectives at the EU level. (EC, 2021).

Despite these proposals, structural barriers – including administrative burden and limited stakeholder awareness – are dampening the effectiveness of current public allocations.

Constraints and Catalysts for Achieving Affordable Climate Insurance

The dialogue highlighted a complex set of challenges undermining both the economic viability and social acceptability of climate insurance solutions. A primary concern is the growing volatility of extreme weather patterns, which has significantly reduced the predictive accuracy of conventional climate models. This decline in predictability has, in turn, led to heightened actuarial uncertainty and premium volatility, making insurance offerings less stable and more expensive. One contributing factor is the shifting behavior of jet streams, which is driving more frequent and intense extreme weather events across Europe and beyond. (Lee J., et al., 2024)

Key risk domains – particularly drought and spring frost – remain significantly underinsured.

Drought poses a major threat across Central and Southern Europe, yet existing models have not adequately captured the full extent or evolving nature of this risk under current and projected climate conditions. This modelling gap hampers effective risk pricing and limits the development of tailored insurance products capable of addressing the increasing severity and frequency of drought events (JRC, 2024).

The dialogue identified several key innovations and policy instruments as pathways to enhancing the affordability of climate insurance services. These include the expansion of parametric insurance, the development of public-private financing models, and the improvement of data quality and granularity to enable more accurate risk assessment and pricing. The dialogue emphasized the growing importance of parametric insurance for drought, particularly when supported by transparent trigger thresholds that enhance both operational clarity and claims processing efficiency. Parametric insurance was recognized as increasingly mainstream and is expected to see further expansion across the sector. In parallel, the deployment of public-private co-financing frameworks was identified as a promising approach to reduce premium costs for high-risk yet climate-adaptive agricultural producers.

Improving data granularity, especially through enhancements in the accuracy and resolution of datasets provided by the German Weather Service (DWD), was seen as a key step in mitigating basis risk and strengthening consumer trust. Despite acknowledged precision limitations, DWD data remains highly trusted by farmers. Nevertheless, a persistent epistemic trade-off between the simplicity of insurance products and the actuarial precision required for effective risk pricing continues to limit market scalability.

Institutional Capacities and Technical Infrastructure Required for Regional Uptake

To enable the regional-scale implementation of climate insurance instruments, the following priority needs must be addressed:

• – Dedicated technical assistance to support the implementation and monitoring of adaptation actions that qualify for insurance-linked incentives. The Lower Saxony model, which ties support to verified adaptation measures, serves as a strong reference framework.
• – Regulatory harmonization to clearly define the legal mandates and responsibilities of municipalities in negotiating, implementing, and managing insurance contracts.
• – Investment in municipal administrative capacity, particularly in the areas of risk appraisal, claims management, and stakeholder coordination. Accurate risk assessment is critical, and premium subsidies alone are insufficient without robust local implementation structures.
• – Transnational harmonization of state aid frameworks to prevent distortions in production incentives and insurance access across EU member states, ensuring a level playing field for farmers throughout the Union.

It was also confirmed that insurance offerings should be aligned with capital investments in climate-resilient agricultural infrastructure, including irrigation systems, hail protection nets, and agroforestry. Notably, agroforestry was highlighted as a particularly underutilized opportunity, offering substantial potential for both risk reduction and long-term resilience.

Frontier Innovations and Best Practices in Climate Insurance Architecture

The Climate Resilience Dialogue (CRD) highlighted several cutting-edge approaches and emerging design principles that are shaping the future of climate risk insurance:

• – Adoption of parametric insurance models, particularly in the drought insurance market, where objective meteorological indicators (e.g., rainfall thresholds) serve as transparent and efficient disbursement triggers.
• – Development of results-based insurance mechanisms that reward measurable resilience outcomes. The Lower Saxony model, which links support to proven
• – adaptation practices, was noted as a strong foundation for such conditional frameworks.
• – Integration of behavioral insights into insurance product design, acknowledging the roles of social learning, peer influence, and cognitive heuristics in shaping farmers’ decision-making. These behavioral dynamics are critical, as farmers often influence one another and form demand collectively.
• – Exploration of hybrid insurance schemes that incorporate ecosystem service valuations and introduce disincentives for environmentally harmful practices, such as the cultivation of former peatlands. These models aim to align insurance incentives with broader sustainability goals.

There was a consistent emphasis on the co-creation of insurance products in collaboration with end users, to ensure greater contextual relevance, user comprehension, and adoption. Engaging farmers directly in the design process was seen as essential to building trust and tailoring solutions to real-world needs.

Conclusion and Steps Forward

There was a consistent emphasis on the co-creation of insurance products in collaboration with end users to ensure greater contextual relevance, user comprehension, and adoption. Engaging farmers directly in the design process was seen as essential to building trust and tailoring solutions to real-world needs. In this context, several insurance companies expressed their readiness to continue the dialogue through a structured Community of Practice, aimed at fostering ongoing exchange, mutual learning, and the collaborative development of scalable, farmer-centered insurance solutions.

References:

Lee, J., Wang, SY.S., Son, SW. et al. Evolving winter atmospheric teleconnection patterns and their potential triggers across western North America. npj Clim Atmos Sci 7, 63 (2024). https://doi.org/10.1038/s41612-024-00608-2

Joint Research Centre: Toreti, A., Bavera, D., Acosta Navarro, J., Acquafresca, L., Barbosa, P., De Jager, A., Ficchi, A., Fioravanti, G., Grimaldi, S., Hrast Essenfelder, A., Magni, D., Mazzeschi, M., McCormick, N., Salamon, P., Santos Nunes, S., & Volpi, D. (2025). Drought in Europe April 2025 – GDO Analytical Report(JRC142141). Publications Office of the European Union. https://data.europa.eu/doi/10.2760/7964287

EC (2021). Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation, and for determining whether that economic activity causes no significant harm to any of the other environmental objectives. Official Journal of the European Union, L 442, 9.12.2021, 1–349. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32021R2139

EP (2023). Territorial implementation of the Common Agricultural Policy [AgriRegions Booklet]. https://www.europarl.europa.eu/cmsdata/277186/2023%2010%2025_Territorial%20implementation%20of%20the%20CAP_AgriRegions%20Booklet.pdf

KLARA (2024). Förderangebot: Mehrgefahrenversicherung [Web page]. KLARA 2023–2027. https://www.klara.niedersachsen.de/startseite/forderangebot_klara/mehrgefahrenversicherung/mehrgefahrenversicherung-forderangebot-223295.html

STMELF (2025). Förderung von Mehrgefahrenversicherungen [Web page]. Retrieved July 2025, from https://www.stmelf.bayern.de/foerderung/foerderung-von-mehrgefahrenversicherungen/index.html