The insurance crisis: an illness caused by rising climate risks
The insurance industry is facing a growing crisis that threatens our society and the global economy. We have temporarily breached 1.5℃ leaving individuals increasingly vulnerable. The numbers are stark: Carbon Brief compiled every published study on the influence of climate change on extreme weather and found that 74% of the events were made more likely or severe because of climate change.
The rising frequency and severity of extreme weather are driving greater losses, leading insurers to raise premiums and narrow coverage. According to MunichRe, insured losses could surpass US$100 billion by the end of 2024 again, while Howden and BCG suggest that the global insurance premiums for physical risks and natural catastrophe protection are set to increase by 50% by 2030 to keep up with these rising climate-related losses.
Resiliency efforts must be paired with decarbonisation
Simply retreating from high-risk areas is not a viable solution. Even regions historically considered low-risk, such as Asheville, North Carolina are now experiencing the impacts of the climate crisis. This reactive approach is not only unsustainable but also deeply inequitable, shifting financial burden onto individuals and families, many of whom may lack the resources to pick up and move their lives.
Addressing this insurability crisis requires a strategic pivot: the insurance industry must pair resilience-building measures with robust decarbonisation efforts. This dual approach fosters both responsible business and environmental decisions and is critical for financial stability.
Generali’s unprecedented climate action
In a promising development for voluntary corporate leadership, Generali announced in October 2024 it would restrict insurance cover for new LNG terminals and gas-fired power plants. This made Generali the first major insurer to adopt restrictions covering the entire oil and gas value chain, demonstrating that ambitious action is possible. However, voluntary measures alone are insufficient to address the scale of the crisis.
Regulation and reform can drive the systemic change we need
Effective regulation and reform are urgently needed to address the impact of climate change on insurance markets and the people who rely on them. Recent progress, such as European Insurance and Occupational Pensions Authority (EIOPA)’s recognition of the heightened risks tied to fossil fuels and the UN Forum for Insurance Transition to Net Zero (FIT) global guidance on insurance transition plans that calls on a ‘total balance sheet approach’, which integrates climate risks across underwriting and investments, reflects a growing momentum toward responsible risk management and climate action. However, regulators must move faster to ensure the entire industry adopts necessary changes.
In the coming weeks, we will release the eighth annual insurance scorecard, offering an evaluation of the global insurance industry’s role in the climate crisis. In addition to ranking the fossil fuel policies of 30 leading (re)insurers, this year’s scorecard reveals the extent to which climate change is attributable to losses and provides data on insurers’ support for renewable energy and fossil fuel activities. The findings will highlight both progress and gaps in the industry’s response to the climate crisis.
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The path forward
While resilience measures, such as home hardening and community adaptation, are essential and urgently needed, they alone are not enough. These efforts must be paired with decisive decarbonisation initiatives to address the root causes of the crisis. Without a unified approach integrating both resilience and decarbonisation, the insurance industry will continue to face record losses, further destabilising economies that depend on it. By combining regulatory action with bold corporate leadership, the insurance sector can play a role in driving the systemic changes needed to enhance societal stability and economic resilience in the face of the climate crisis.
