Introduction 

SOTERIA’s Regional Climate Resilience Dialogues (CRDs) bring together local stakeholders to discuss climate-related risks and the role of insurance in enhancing resilience. Based on the European Commission’s model, the dialogues address topics such as the climate protection gap, insurance coverage, public-private collaboration, and risk data.

The regional CRD in Gabrovo, Bulgaria was held on November 21, 2024. Around 30 participants, including the Mayor, municipal departments, regional authorities, utility providers, insurers, academics, and project partners explored local climate risks, insurance behavior, and tools like the Risk Data Hub through expert presentations and group discussions.

Current Status of the Climate Protection Gap

The case study of Gabrovo focuses on exploring additional and new financial avenues (including innovative insurance-related solutions) for the protection and restoration of urban areas and forest areas of Gabrovo to conserve its environmental services, including its buffering and absorption capacity in extreme weather events. The forest ecosystem is widely distributed in the pre-Balkan areas where Gabrovo is situated. The case study aims to create scalable solutions to support the adaptation to climate change in the urban areas of the municipality and the conservation and restoration of the Gabrovo natural flora, fauna, and biodiversity.

How does climate change affect Gabrovo, Bulgaria?

1. Extreme weather events

Over the last decade, the city’s residents have witnessed extreme weather events including

• – Unusual strong gale-force winds and heavy rainfall, oftentimes accompanied by hailstorms, leading to localized flooding and damages by the winds on the infrastructure.
• – Short-term intense snowfall during late autumn and winter months disrupting the normal rhythm of life.

2. Invasive species

Climate change has facilitated the migration of invasive species, such as the “борова процесионка” – Thaumetopoea pityocampa, which is a moth species belonging to the family Thaumetopoeidae, into Gabrovo’s ecosystem. In recent years, the Department of Forestry has come to witness its migration from the south of the mountain range to the area of Gabrovo, which is not native to the area.

Despite climate change challenges, including floods and other extreme weather events, there is a lack of interest in climate insurance and of prerequisites and motivation for citizens and employers to insure their private homes and for employers to insure their businesses, especially for industrial enterprises. Businesses are usually insured, or only to some extent. Investments in preventing the factors leading to the aforementioned meteorological events are thus accompanied by low insurance coverage.

Establishing a regional data hub – Learning from the Norwegian Case

A regional data hub in Norway serves as a best practice in public-private cooperation within the insurance sector. It was developed through dialogues between insurers and public authorities to improve understanding of climate-related risks, strengthen disaster prevention, and reduce losses through a shared data platform, the Knowledge Bank.

The Norwegian Knowledge Bank: Origins

The idea of the Knowledge Bank emerged from challenges where insurance companies and municipalities in Norway disagreed on the risk and magnitude of climate-related hazards, due to a lack of loss data and vulnerability analysis, blind investments in city infrastructure, and a lack of insurance loss data at the asset level.

The public-private dialogues led to an agreement that insurers, cities, municipalities, and national authorities need to compile loss data from different stakeholders, adopt a coordinated approach to decision-making at both, national and local levels, and cooperate in monitoring and reporting under UN agreements.

Pilot project

Between 2010 and 2015, Finance Norway, insurers and municipalities launched a public-private pilot project to share insurance data on the causes of damage (hazards), economic losses, business interruption (indirect economic costs), and hazard occurrence. This pilot project led to new insights into emerging risks, an improved understanding of the risks of climate change, a knowledge base for existing infrastructure and reinvestment, and enhanced risk and vulnerability assessments.

Inclusion in national regulation

From 2017 to 2020, the Civil Protection Directorate (DSB) in Norway worked toward establishing a public-private Knowledge Bank to collect and store loss data at the asset level and make the data available for assessment processes. The National Civil Protection Act now gives DSB the legal right to collect, use, and share insurance loss data at the asset level with municipalities, the National Flood Agency, and regional governors. Other stakeholders can access insurance loss data at the municipality level.

Potential Insurance Solutions for better protection in Gabrovo, Bulgaria

How does behavioural analysis explain the lack of insurance coverage?

Stakeholders were presented with survey findings on barriers to insurance uptake in Gabrovo. While many acknowledged the growing frequency and intensity of climate hazards, only 43% insured their assets due to these risks. In contrast, 36% cited high premiums or a belief that losses were unlikely.

Behavioral analysis explains this gap through psychological and contextual factors. People are influenced by peer behavior, underestimate personal risk, and are deterred by financial concerns. Cognitive biases, such as poor future planning, present bias, fear of losses, and avoidance of complex issues, further reduce motivation to insure.

To shift behavior, clear and accessible information about climate risks is essential. Cooperation among local authorities, national agencies, and insurers is key. This includes sharing scientific forecasts, real-life risk examples, location-specific models, and financial scenarios to help people make informed decisions.

Which factors explain the low insurance penetration in Gabrovo, Bulgaria?

Findings from the European Climate Resilience Dialogues highlighted key factors behind the climate protection gap. On the demand side, barriers include low risk awareness, limited access to disaster risk data, lack of regional expertise, unaffordable insurance, and low trust in insurers. On the supply side, challenges include insufficient data for risk modeling, reduced eligibility, and rising insurance costs.

In Bulgaria, the insurance penetration level is currently very low, yet the country faces a high risk of flooding. The municipality of Gabrovo is divided into several risk zones on a scale of 1-4. Additionally, Bulgaria lacks mandatory property insurance (excluding the cases of credits and grants).

The majority of homeowners in our country do not have property insurance. Less than 10% of property owners in the country have property insurance with the risk of natural disasters included, and in most cases, they also do not voluntarily insure their property. The largest percentage of “Fire and natural disaster” insurance was purchased as an integral part of mortgage loans granted for the purpose of purchasing real estate.

Key reasons for low coverage:

1. Perceived low risk: Many believe adverse events are unlikely to affect them. It turns out that very few people fear natural disasters before they happen. According to insurance experts, usually after a catastrophic event, there is a euphoric increase in purchased property insurance policies, which then quickly subsides.

2. Perceived financial constraints: Insurance is considered unaffordable by many.

3. Distrust of insurers: Concerns about inadequate compensation in case of an insured event discourage policy adoption.

What actions will be undertaken to increase the protection gap in Gabrovo?

To mitigate climate risks and reduce the climate protection gap, Gabrovo should conduct climate risk assessments in the region, continue to adopt climate measures (e.g., nature-based solutions, supportive policies, technological measures, and raise awareness to promote behavioral changes), and develop innovative insurance solutions focusing on risk-based premiums, incentivizing the implementation of risk reduction measures, clear and transparent conditions, and simplified procedures for the payment of benefits.

Reference to the NET Zero City Contract of Gabrovo – Envisaged Nature-based Solutions for Adaptation

Gabrovo is one of 100 EU cities aiming for climate neutrality by 2030 and the only Bulgarian pilot city in the Net Zero Cities (NZC) platform. It is currently under evaluation for the European Commission’s Climate City Label. Gabrovo is actively implementing measures to cut emissions and adapt to climate change, participating in various adaptation projects. The SOTERIA project supports the city in developing innovative climate solutions through expert collaboration.

Key takeaways

1. To make informed decisions about insurance, relevant information on climate hazards and loss data should be collected and shared. Greater emphasis should be placed on science-based information, such as modeling and risk maps, rather than relying solely on empirical evidence.

2. Gabrovo should prioritize implementing innovative measures to improve insurance-related decisions. These initiatives must cater to the needs of both businesses and individuals (such as property insurance) while fostering greater awareness and understanding of climate-related risks, and insurance. Educating the public on how insurance works and its vital role in helping individuals and businesses manage climate change risks is crucial.

3. Maintaining and strengthening the collaboration between insurance providers, businesses (particularly in the industrial sector), and municipalities is essential. Public investments in climate change adaptation remain highly relevant and can significantly enhance resilience. Gabrovo, as a frontrunner among Bulgarian cities in this domain, has an opportunity to set an example by fostering innovative partnerships and

Keywords

Climate Resilience Dialogues, Climate Protection Gap, Risk Hub, Behavioural Analysis, Industrial Entreprises, Net Zero Cities, Nature-based Solutions.