Insurance and Climate Change

𝗜𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲 𝘄𝗶𝗹𝗹 𝗯𝗲 𝘁𝗵𝗲 𝗳𝗶𝗿𝘀𝘁 𝘀𝘆𝘀𝘁𝗲𝗺 𝘁𝗼 𝗰𝗿𝗮𝗰𝗸 𝘂𝗻𝗱𝗲𝗿 𝗰𝗹𝗶𝗺𝗮𝘁𝗲 𝗿𝗶𝘀𝗸 — 𝗮𝗻𝗱 𝗶𝘁 𝘀𝗵𝗼𝘂𝗹𝗱 𝗰𝗼𝗻𝗰𝗲𝗿𝗻 𝘂𝘀 𝗮𝗹𝗹. Natural disasters caused $𝟯𝟲𝟴 𝗯𝗶𝗹𝗹𝗶𝗼𝗻 in global economic losses last year, according to Aon — the ninth year in a row losses topped $300 billion. Only 𝟰𝟬% of those losses were insured. The protection gap is widening. As insurers retreat from high-risk regions, public safety nets — often overstretched — are stepping in. More households, businesses, and governments are being left to absorb risks they cannot afford. This isn’t just about insurance anymore. When insurance breaks down, so does credit. When credit dries up, property values fall, costs rise, and resilience weakens — just when it’s needed most. @Günther Thallinger 𝗳𝗿𝗼𝗺 𝗔𝗹𝗹𝗶𝗮𝗻𝘇 put it starkly: “𝘛𝘩𝘦𝘳𝘦 𝘪𝘴 𝘯𝘰 𝘤𝘢𝘱𝘪𝘵𝘢𝘭𝘪𝘴𝘮 𝘸𝘪𝘵𝘩𝘰𝘶𝘵 𝘧𝘶𝘯𝘤𝘵𝘪𝘰𝘯𝘪𝘯𝘨 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘴𝘦𝘳𝘷𝘪𝘤𝘦𝘴. 𝘈𝘯𝘥 𝘵𝘩𝘦𝘳𝘦 𝘢𝘳𝘦 𝘯𝘰 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘴𝘦𝘳𝘷𝘪𝘤𝘦𝘴 𝘸𝘪𝘵𝘩𝘰𝘶𝘵 𝘵𝘩𝘦 𝘢𝘣𝘪𝘭𝘪𝘵𝘺 𝘵𝘰 𝘱𝘳𝘪𝘤𝘦 𝘢𝘯𝘥 𝘮𝘢𝘯𝘢𝘨𝘦 𝘤𝘭𝘪𝘮𝘢𝘵𝘦 𝘳𝘪𝘴𝘬.” The Institute and Faculty of Actuaries (IFoA) project a 𝟱𝟬% 𝗰𝗼𝗹𝗹𝗮𝗽𝘀𝗲 𝗶𝗻 𝗴𝗹𝗼𝗯𝗮𝗹 𝗚𝗗𝗣 𝘄𝗶𝘁𝗵𝗶𝗻 𝗱𝗲𝗰𝗮𝗱𝗲𝘀 if climate risk is not properly managed. Climate risk is no longer a future scenario. It is here. It is compounding. And it is reshaping our economy in real time. There are positive signs: ➤ Hannover Re and Swiss Re are restricting fossil fuel underwriting. ➤ Parametric insurance models are speeding up disaster recovery. ➤ EIOPA and the European Central Bank are pushing for public-private risk sharing. These are encouraging — but early signs. 𝗠𝘆 𝘁𝗮𝗸𝗲: Climate risk is already disrupting the systems we rely on: insurance, credit, asset valuation, and public finances. Systems change is needed. The insurance sector holds a unique vantage point — but leadership now demands rethinking long-held assumptions about risk, resilience, and responsibility. The sector has an opportunity to lead: ➤ Embed forward-looking climate risk into underwriting ➤ Signal future exposures more transparently ➤ Drive transition finance to accelerate decarbonisation ➤ Redirect investment into adaptation ➤ Co-design shared risk pools and resilience bonds Collaboration between insurers, financiers, and governments is no longer optional — it is the foundation for economic stability in a climate-disrupted world. The sooner we align risk pricing with physical reality, the stronger our chances of building a more resilient economy for the future. #climaterisk #insurance #resilience #finance #sustainability #systemicrisk #adaptation –––––––––– For updates on sustainability, climate, and innovation, follow me on LinkedIn: @Scott Kelly

The Swiss Re report on natural catastrophes in 2025 has just been released. 2025 was below the long-term loss trend but not a sign of reduced risk. Here is what the year actually contained: 🔥 USD 40 billion in insured losses from the Los Angeles wildfires alone — the largest wildfire loss event in history ⛈️ USD 51 billion from severe convective storms — the third-costliest year on record for this peril 🌊 USD 11 billion in economic losses from compound monsoon flooding across Southeast Asia 🌍 More than 17,900 people killed or missing from disasters induced by natural hazards Wildfire insured losses are growing at 12% per year. Severe convective storms at 7%. And crucially, in North America for wildfires and in Europe for storms, losses are growing twice as fast as exposure — meaning hazard intensification and vulnerability shifts are adding fuel beyond what simple asset growth can explain. This is not an insurance story. It is a climate and resilience story. The World Meteorological Organization State of the Global Climate 2025 documented that 2025 was the second or third warmest year in the 176-year observational record. Ocean heat content reached a new record high for the ninth consecutive year. Eight of the ten most negative glacier mass balance years since 1950 have occurred since 2016. The Earth's energy imbalance — the fundamental measure of how fast heat is accumulating in the climate system — reached its highest value on record in 2025. The physics of a warming planet shows up in the loss ledgers of the insurance industry with a lag — and that lag is now closing fast. Over 80–90% of catastrophe losses in emerging economies remain uninsured. The communities absorbing the greatest physical risk have the least financial capacity to recover from it. Read the Carbon Brief article: https://lnkd.in/dZNR6E8k Read the WMO State of Global Climate: https://lnkd.in/eEuwv7tV

$7.3 trillion. That is the scale of global financial flows linked to direct negative impacts on nature – including $2.4 trillion in public subsidies. By comparison, $220 billion was directed toward conservation and restoration. The message from last week’s IPBES Business and Biodiversity Assessment is clear: we are actively financing nature’s destruction. For the financial sector, shifting these capital flows is a prudential necessity. Clean water, pollination, raw materials, weather regulation… These are the invisible scaffolding of our economy. Ecosystem collapse will challenge food security, disrupt supply chains, and undermine the predictability that financial markets depend on. But as long as it remains more profitable to destroy ecosystems than to preserve them, short-termist "economic rationality" will continue to obstruct corrective action. The failure lies in our regulatory and financial frameworks. Climate change and biodiversity loss are compounding systemic risks. Because all businesses contribute to this disruption, all businesses must be part of the solution. The incentives must change. WWF Switzerland furthered this point from the insurance side: climate change and nature loss are undermining insurability and widening the protection gap. Climate change acts as a threat multiplier, while nature loss strips away our capacity for adaptation. In a vicious circle, every catastrophe pushes ecosystems closer to the brink. Storms, droughts, floods, and wildfires cost EU countries over €208 billion between 2021 and 2024. Floods alone accounted for nearly half of that. Meanwhile, land artificialization increases by 1,500 sq. km each year and only 6% of EU wetlands are in good condition (European Environment Agency). The insurance sector has unique leverage. It can demand better data and shift capital toward resilient, regenerative models. This point is gaining traction; it should now evolve into systemic action. The fundemental aim must be to redirecting capital away from nature-negative activities and phase out finance for fossil-fuel expansion. Otherwise, we are quite literally funding the risk we are trying to insure against. With the IPBES assessment, our toolbox has grown. The authors lay out more than 100 concrete actions to create an enabling environment and align economic decision-making with environmental reality. As Maarten van Aalst recently noted: "Adaptation is a daunting task, but at the same time quite a doable task. It’s not rocket science." It boils down to political choices. True "simplification" should involve creating frameworks that help businesses manage complexity. Not masking that complexity in the hope it goes away. Let’s transform our businesses before the foundations they stand on are washed away.

You may not believe in climate change (despite scientific consensus), but your insurance provider sure does. Günther Thallinger of Allianz puts it plainly: if global temperatures rise by 3°C (which is where we’re currently headed) the insurance industry will collapse. “The financial sector as we know it ceases to function. And with it, capitalism as we know it ceases to be viable.” Extreme heat and climate-driven disasters have killed and displaced millions across the globe. This isn’t normal. These events are becoming more unpredictable, more intense and more deadly. Climate change and the destruction of nature are combining to create the perfect storm, fuelling disasters while stripping away our capacity to endure them. Right now, in fact, you are likely reading about a fresh disaster that is ‘unprecedented’. And the financial fallout is mounting. Global insured losses from natural (climate) disasters have averaged about US$100 billion over the past five years (Moody's). And insurance providers are hiking up premiums or, as was the case in California, refusing to issue new home insurance policies due to climate disaster (see State Farm and Allstate). As Günther says, "Heat and water destroy capital. Flooded homes lose value. Overheated cities become uninhabitable. Entire asset classes are degrading in real time." The risk of climate change, he says, has historically been managed by the insurance industry. But we are fast approaching temperature levels "where insurers will no longer be able to offer coverage for many of these risks." Insurers don’t deal in opinion, they deal in data. And the data is clear: climate change and nature decline aren’t up for debate; they’re a reality that you are witnessing. Whether or not you buy the science, the financial consequences are impossible to ignore. Your premiums have already noticed. Thankfully, we already have many of the tools and solutions to address climate change and the destruction of nature. What we don't have? Consistent political will. For Australians wanting to make a difference ahead of the election, Biodiversity Council has created a simple tool to help you contact your local political candidates and call for stronger environmental action: https://lnkd.in/ghAxEv2y They have also identified the key actions we need the next government to take to safeguard and restore the environment: https://lnkd.in/g62uCTfd See Günther Thallinger's post: https://lnkd.in/gahhv6MK See the report by Moody's: https://lnkd.in/ggE_2VCa See the article by The Guardian: https://lnkd.in/gpGBXCRZ

Business Risks from Climate Change 🌎 Businesses today face increasing exposure to climate-related risks that can disrupt operations, damage assets, and impact long-term viability. These risks are no longer hypothetical—they are material, measurable, and growing in relevance across all sectors. According to the TCFD, climate risks fall into two main categories: physical risks and transition risks. Physical risks include both acute events, such as storms and floods, and chronic impacts like water scarcity or rising temperatures. Transition risks emerge from the shift to a low-carbon economy and include regulatory changes, shifts in market demand, and pressure to invest in new technologies. Extreme weather events, supply chain interruptions, and damage to infrastructure are some of the key physical risks. These can lead to increased operational costs, reduced productivity, and disruptions in raw material availability. Transition risks are equally important. Carbon pricing, energy cost volatility, and investor scrutiny are reshaping business models. Companies that delay adaptation may face stranded assets, higher insurance costs, and reduced access to capital. Addressing these risks requires more than isolated sustainability initiatives. It demands integration into core business strategy, risk management, and investment planning. Short-term actions can have long-term implications. Clear priorities include assessing exposure, upgrading infrastructure for resilience, and embedding climate risk into existing governance and risk processes. These actions support both operational continuity and regulatory preparedness. Developing low-carbon strategies and enhancing disclosure practices aligned with standards like the TCFD are also essential steps. Transparent reporting builds trust with investors, regulators, and other stakeholders. Climate risk is business risk. Managing it effectively is no longer optional—it is fundamental to long-term value creation and competitiveness. #sustainability #sustainable #business #esg #climatechange #risks

𝗪𝗵𝘆 𝗲𝗰𝗼𝗻𝗼𝗺𝗶𝘀𝘁𝘀 𝘀𝘆𝘀𝘁𝗲𝗺𝗮𝘁𝗶𝗰𝗮𝗹𝗹𝘆 𝘂𝗻𝗱𝗲𝗿𝗲𝘀𝘁𝗶𝗺𝗮𝘁𝗲 𝗰𝗹𝗶𝗺𝗮𝘁𝗲 𝗿𝗶𝘀𝗸𝘀 A new report (👉https://lnkd.in/eMsCKQuh) exposes a fundamental gap between what climate scientists expect and what economic models predict. 𝗧𝗵𝗲 𝗰𝗼𝗿𝗲 𝗽𝗿𝗼𝗯𝗹𝗲𝗺: 68 climate scientists from 12 countries were surveyed about economic damage estimates. Their insights differ radically from standard models: 🔴 At 3°C warming, experts estimate median GDP damage at ~35%. The Nordhaus DICE model predicts only ~3% 🔴 36% of scientists place the "collapse threshold" 𝘣𝘦𝘭𝘰𝘸 4°C, while many scenarios model up to 4°C and beyond 🔴 250 million people displaced by climate disasters in the past decade, impacts barely visible in GDP figures 𝗪𝗵𝘆 𝘄𝗲 𝗺𝗲𝗮𝘀𝘂𝗿𝗲 𝘄𝗿𝗼𝗻𝗴: We focus on global averages, but people experience 𝘭𝘰𝘤𝘢𝘭 𝘦𝘹𝘵𝘳𝘦𝘮𝘦𝘴: the 2021 Texas storm caused $195 billion damage while barely registering in global temperature statistics. GDP often 𝘳𝘪𝘴𝘦𝘴 after disasters (reconstruction spending) while real wealth declines – the "disaster industrial complex" accounts for 1/3 of US economic activity at 1.4°C warming Models assume smooth damage curves but ignore tipping points, cascades, and system failures 𝗪𝗵𝘆 𝘁𝗵𝗶𝘀 𝗺𝗮𝘁𝘁𝗲𝗿𝘀: This gap determines how pension funds assess risks and how central banks conduct stress tests. The NGFS recently raised damage estimates from 7-14% to 30% GDP loss at 3°C, but climate scientists say even this underestimates. 𝗧𝗵𝗲 𝘂𝗻𝗱𝗲𝗿𝗹𝘆𝗶𝗻𝗴 𝗰𝗮𝘂𝘀𝗲: Research ( 👉 https://lnkd.in/eVsBapbT) shows "disciplinary asymmetries": economists seek optimization within existing systems; natural scientists see limits and tipping points. Where economists use GDP as proxy, scientists see missed impacts on health, ecosystems, and inequality. As a consequence, environmental scientist see degrowth as an option, while economist favour market based solutions 👇 . 𝗪𝗵𝗮𝘁 𝗻𝗼𝘄: The report calls for "recalibration toward precaution, robustness, and transparency": ✓ Report ranges instead of point estimates ✓ Acknowledge where models fail (especially above 2-3°C) ✓ Integrate metrics beyond GDP: mortality, inequality, ecosystem degradation ✓ Model cascades and second-order effects The crucial insight: climate change introduces risks exceeding existing economic frameworks. The response is not waiting for perfect models, but recognizing that avoiding irreversible outcomes is cheaper than pricing them after the fact. For long-term investors: climate risk cannot be fully diversified away. It's a systemic risk requiring fundamentally different strategies. #climaterisk #climateeconomics #systemchange #financialrisk #sustainablefinance

A powerful staff report and open-access dataset from the US Senate Budget Committee shows that climate change is increasingly upending the US insurance market. Here's how. “𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗰𝗵𝗮𝗻𝗴𝗲 𝗶𝘀 𝗻𝗼𝘁 𝗷𝘂𝘀𝘁 𝗮𝗯𝗼𝘂𝘁 𝗽𝗼𝗹𝗮𝗿 𝗯𝗲𝗮𝗿𝘀 𝗮𝗻𝗱 𝗺𝗲𝗹𝘁𝗶𝗻𝗴 𝗶𝗰𝗲𝗯𝗲𝗿𝗴𝘀 𝗮𝗻𝘆𝗺𝗼𝗿𝗲. 𝗜𝘁’𝘀 𝗮𝗹𝘀𝗼 𝗮𝗯𝗼𝘂𝘁 𝗰𝗹𝗶𝗺𝗮𝘁𝗲-𝗳𝗹𝗮𝘁𝗶𝗼𝗻 𝗯𝗹𝗲𝗲𝗱𝗶𝗻𝗴 𝗳𝗮𝗺𝗶𝗹𝘆 𝗯𝘂𝗱𝗴𝗲𝘁𝘀—𝘄𝗶𝘁𝗵 𝗵𝗶𝗴𝗵𝗲𝗿 𝗰𝗼𝘀𝘁𝘀 𝗳𝗼𝗿 𝗶𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲, 𝗴𝗿𝗼𝗰𝗲𝗿𝗶𝗲𝘀, 𝗮𝗻𝗱 𝗵𝗲𝗮𝗹𝘁𝗵 𝗰𝗮𝗿𝗲—𝗮𝗻𝗱 𝗰𝗮𝘀𝗰𝗮𝗱𝗶𝗻𝗴 𝗲𝗰𝗼𝗻𝗼𝗺𝘆-𝘄𝗶𝗱𝗲 𝘀𝗵𝗼𝗰𝗸𝘀. 𝗪𝗵𝗮𝘁 𝗼𝘂𝗿 𝗻𝗲𝘄 𝗱𝗮𝘁𝗮 𝗿𝗲𝘃𝗲𝗮𝗹 𝗶𝘀 𝘁𝗵𝗮𝘁 𝘁𝗵𝗲 𝗳𝗮𝗶𝗹𝘂𝗿𝗲 𝘁𝗼 𝗱𝗲𝗮𝗹 𝘄𝗶𝘁𝗵 𝗰𝗹𝗶𝗺𝗮𝘁𝗲 𝗰𝗵𝗮𝗻𝗴𝗲 𝗶𝘀 𝗮𝗹𝘀𝗼 𝗮𝗳𝗳𝗲𝗰𝘁𝗶𝗻𝗴 𝘄𝗵𝗲𝘁𝗵𝗲𝗿 𝗳𝗮𝗺𝗶𝗹𝗶𝗲𝘀 𝗰𝗮𝗻 𝗲𝘃𝗲𝗻 𝗴𝗲𝘁 𝗵𝗼𝗺𝗲𝗼𝘄𝗻𝗲𝗿𝘀 𝗶𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲, 𝘄𝗵𝗶𝗰𝗵 𝘁𝗵𝗿𝗲𝗮𝘁𝗲𝗻𝘀 𝘁𝗵𝗲𝗶𝗿 𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝘁𝗼 𝗴𝗲𝘁 𝗮 𝗺𝗼𝗿𝘁𝗴𝗮𝗴𝗲, 𝘄𝗵𝗶𝗰𝗵 𝘀𝗽𝗲𝗹𝗹𝘀 𝘁𝗿𝗼𝘂𝗯𝗹𝗲 𝗳𝗼𝗿 𝗽𝗿𝗼𝗽𝗲𝗿𝘁𝘆 𝘃𝗮𝗹𝘂𝗲𝘀 𝗶𝗻 𝗰𝗹𝗶𝗺𝗮𝘁𝗲-𝗲𝘅𝗽𝗼𝘀𝗲𝗱 𝗰𝗼𝗺𝗺𝘂𝗻𝗶𝘁𝗶𝗲𝘀 𝗮𝗰𝗿𝗼𝘀𝘀 𝘁𝗵𝗲 𝗰𝗼𝘂𝗻𝘁𝗿𝘆. -Chairman Sen. Sheldon Whitehouse Key takeaways in the new data: -Climate change is driving increasing non-renewal rates. The data confirm that the states and counties most exposed to climate-related risks, like wildfires or hurricanes, are among those with the highest non-renewal rates and the highest growth in non-renewal rates. -Insurance non-renewals are not exclusively a problem for communities typically seen as being on the front lines of climate change. Florida, California, and Louisiana have been seen as the canaries in the coal mine, but the Committee’s data make clear that areas such as southern New England, parts of Montana, coastal and inland North Carolina, coastal regions of New Jersey, New Mexico, South Carolina, and even Oklahoma, among others, are not far behind. -Across the United States, there is a clear positive correlation between rising non-renewal rates and rising premiums—and a similar correlation between annual premium rate changes and non-renewal rate percentage point changes over time—demonstrating that climate change has become a major cost-of-living issue for families across the country. Check out the data and report here: https://lnkd.in/eWuQgyVB #climate #america #insurance #climaterisk #US #climatechange #climatefinance #mortgages #finance

CFOs are rewriting the risk register. Not because the politics changed. Because the numbers did. Carbon exposure is now quantifiable, material to valuation, and on the radar of a growing number of investors. What strikes me is that the CFOs who get this aren't treating it as a compliance problem anymore. They're turning it into a competitive advantage. Because that's exactly what it is. Climate data is reshaping capital allocation decisions from site selection, expansion to major capex. Investors are repricing portfolios through the lens of physical and transition risk. Companies that can demonstrate credible resilience are strengthening their position with customers, shareholders, and teams alike. This is a resilience conversation now. The ones that wait face higher costs later —  compliance, adaptation, supply chain — with fewer options on the table. That's why Greenly | Certified B Corp's UK launch stopped me in my tracks. They took The Economist's iconic format and rebranded it The Ecologist across the London Underground. One message: environmental intelligence belongs on the same shelf as economic intelligence. We just kept them in separate rooms for too long. Greenly didn't just launch a campaign. They closed a gap that's saved us years. Now, more than ever, we need the City’s rigour applied to climate because we are already seeing that the strongest companies aren't trying to "manage climate risk" anymore. They're using climate intelligence to run the business better. That's where resilience becomes a competitive advantage, not a cost centre. How are you seeing this shift play out? AD Image Credit: Greenly | Certified B Corp

US property & casualty outlook: the past weighs on the present - Our outlook for the US property & casualty #insurance industry in 2025 is evolving. Underlying performance remains strong, but #tariffs present a major risk to the forecast, especially in personal lines affected by auto and construction loss cost shocks. Personal auto insurance regulatory filings for rate decrease have mostly stopped following the April 2nd tariff announcements. We see this as early signal for the industry reacting to the expected pressures on loss costs.   Natural #catastrophes and reserves uncertainty create additional risks. The California wildfires were a large loss to start the year, adding roughly 3 points to the industry net combined ratio for 2025, depleting nearly half of the industry's annual catastrophe budget (~8 pts). Rising construction costs due to tariffs add upside risk to property claims pressures.   Liability reserves additions in 2024 affected profitability for social inflation-affected lines and may indicate more adverse development to come. US insurers added USD 16 billion to prior years' liability loss estimates during 2024 reserve reviews. Over the past decade (2015-24), total adverse development of USD 62 billion for commercial liability lines (excluding medical professional liability) represents a collective under-estimate equivalent to the damages from two major hurricanes.   Sector growth will decelerate toward longer-term averages, as tariff-driven inflation is partly offset by slower economic growth. We expect premium increases of 5% in 2025 and 4% in 2026, with return on equity (ROE) at 10% in both years. https://lnkd.in/eWuMk9vX

Physical climate risk data: the more we learn, the less we know? Khalid Azizuddin's recent piece in *Responsible Investor captures well what many practitioners are grappling with today: - asset-level data that remain incomplete or hard to interpret; - physical hazard exposure often disconnected from financial materiality; - little visibility on supply chains or customers; - adaptation and resilience efforts largely ignored; - and a risk of over-simplifying complex realities into a single “score.” Some three years ago, EDHEC Business School set out to address exactly these challenges, working to advance climate risk modelling and make decision-useful for investors, companies, and public authorities. In this work, we have developed: 🔹 a blueprint for a new generation of probabilistic climate scenarios; 🔹 high-resolution geospatial modeling capabilities to allow for geographic and sectoral downscaling, consistent with each scenario; 🔹 an open database of decarbonisation and resilience technologies through the #ClimaTech project, which officially launched this week. While the research is public, the new EDHEC Climate Institute has also been assisting a school-backed venture, Scientific Climate Ratings (SCR), which integrates this research to deliver forward-looking quantification of the #financialmateriality of climate risks for infrastructure companies and investors worldwide. While SCR provides a rating scale for comparability, it avoids the trap of over-simplification. Each rating is backed by probabilistic scenario modelling, analysis of physical and transition risk exposures, and explicit accounting for adaptation measures. The result is a synthesis that remains transparent, interpretable, and anchored in scientific rigour. Together, these initiatives aim to move the discussion from data abundance to decision relevance, equipping practitioners with tools that connect climate science, finance, and strategy.