Global insurance companies are increasingly collaborating with various stakeholders, including governmental bodies and environmental organizations, to address the multifaceted challenges posed by climate change. This strategic move comes in response to a staggering $154 billion in insured losses that were incurred due to natural disasters in the past year, reflecting a 27% increase over the decade-long average, as reported by Gallagher Re. Economic costs attributed to natural hazards—including wildfires in California, flooding in Spain, and landslides in Southeast Asia—have reached an alarming $417 billion in 2024, with only 37% of that being covered by private and public insurance sectors. The United States alone accounted for a notable $117 billion in insurance losses.
Rather than resorting to raising premiums or withdrawing from high-risk markets, many industry leaders recognize the need to foster partnerships with reinsurers, brokers, local governments, environmental activists, and international organizations. The aim is to develop initiatives that could potentially minimize future financial losses while enhancing community resilience to extreme weather events.
Prominent figures in the insurance sector are vocal about the necessity of cooperative efforts to combat climate-related risks. Dale Porfilio, Chief Insurance Officer at the Insurance Information Institute, emphasized the reluctance to withdraw from markets, noting that such decisions are made carefully. Maryam Golnaraghi, Director of Climate Change and Environment at The Geneva Association, reinforced this sentiment, stating, “No one country is going to solve this problem on its own.” Instead, she argues, comprehensive solutions require collective action at various societal levels, encouraging the formation of incentives and responses tailored to the evolving climate landscape.
This month, The Geneva Association plans to release a report born from nine months of collaboration among industry experts, academia, climate-risk modeling companies, and several regulatory bodies, focusing specifically on strategies to ensure continued access to home insurance despite the upsurge in extreme weather risks. The report emphasizes developed economies with established insurance systems, targeting regions including Australia, Canada, the European Union, Japan, the United Kingdom, and the United States.
Additionally, recent data shows that the financial health of global insurers and reinsurers remains stable, with capital among global reinsurers increasing by $45 billion to reach a total of $715 billion last year. Reported equity figures also saw positive movement, rising by $38 billion to $600 billion, continuing a recovery trend initiated in 2022, as stated in a report from Aon, a global professional services company.
Mike Van Slooten, Aon’s head of market analysis for reinsurance solutions, noted that the persistence of higher retention rates and tighter coverage has helped reinsurers navigate the worst impacts of elevated natural catastrophe activity in 2024, indicating a significant adaptation to the new climate risk realities.
An emerging focus within the industry is the development of climate risk solutions. According to Peter Miller, president and CEO of The Institutes, a nonprofit organization specializing in risk management and insurance, there is a notable uptick in investment directed toward climate research and predictive modeling. This is intended to enhance the capabilities of insurance brokers, who can offer targeted climate advisory services to clients seeking to minimize their risk exposures.
An increasing number of industry associations are also creating frameworks for climate risk disclosure and management, while insurtech firms are pioneering data analytics and innovative parametric products designed to address climate-related perils. Meanwhile, ratings agencies are beginning to incorporate climate-related factors into their evaluation methodologies, fostering a more holistic approach to risk assessment.
“The industry recognizes climate change as a systemic risk that requires significant adaptation,” Miller noted. “Continuing business as usual would lead to market disruptions and coverage gaps.” Leaders in the insurance sector have begun to perceive climate change as a transformative force, signaling a strategic pivot rather than merely a risk consideration. This acknowledgment is shaping investment in capabilities aimed at understanding, pricing, and managing climate risks while proactively engaging clients on adaptation strategies.
In the aftermath of natural disasters, insurance companies position themselves as “financial first responders,” according to Porfilio. The industry plays a pivotal role in risk transfer and financial recovery for affected communities. However, the increasing frequency and severity of these events—spanning floods, hurricanes, and wildfires—alongside soaring repair costs has prompted insurers to reassess their risk appetite in the residential property sector. Porfilio remarked, “Can we continue to insure every single house in the way that we once did, based on the cost and the relative risk?”
Individual state insurance commissioners—often elected officials—examine residential property pricing with heightened scrutiny. Notably, properties situated along coastlines or in disaster-prone zones bear greater exposure to environmental risks, substantially impacting insurance viability compared to properties located inland or in more centralized areas.
To approach these challenges, insurance risk managers and brokers are directly engaging with corporate clients to deliver innovative products and expertise aimed at fostering climate resilience. Nick Faull, head of climate and sustainability risk at Marsh, a global insurance broker, articulated the goal to help organizations fortify their operations against extreme weather through a suite of climate adaptation capabilities. He advises clients to evaluate their exposure on two levels: the immediate impact on assets—ranging from buildings to personnel—and the broader implications for the organization, considering factors like supply chains and critical infrastructure.
Marsh has developed an AI-powered tool, Sentrisk, designed to enhance supply chain monitoring, enabling companies to anticipate and mitigate disruptions due to extreme weather events. For instance, one company learned of significant flood risks associated with a supplier deep in its Southeast Asian supply chain, enabling them to take proactive measures and build resilience against future disruptions.
In February, Aon introduced a parametric insurance solution in partnership with Floodbase and Swiss Re that aims to address and alleviate losses stemming from hurricane-related storm surges along United States coastlines. This innovative product differs from traditional indemnity insurance by linking payouts to real-time meteorological data, specifically based on water height rather than physical damage estimates. Policyholders can tailor their coverage levels to reflect varying degrees of storm surge risk, allowing for flexibility in financial recovery post-disaster.
Hurricane Helene was deemed the most devastating natural catastrophe of 2024, resulting in an estimated $75 billion in economic damages, predominantly from flooding events in the U.S. Aon’s research highlights that a parametric solution offers enhanced liquidity and coverage, addressing a broader spectrum of losses compared to conventional insurance products. Cole Mayer, head of parametric solutions at Aon, pointed out the significant losses attributable to storm surge damage, which can surpass one-third of total costs associated with hurricane events in certain instances.
Furthermore, the insurance industry is increasingly recognizing the importance of collaborating with conservation organizations and governmental bodies. In Canada, the Nature Force initiative includes 15 insurers and Ducks Unlimited Canada and focuses on wetland restoration efforts aimed at reducing urban flood risks. Golnaraghi notes that local and state governments play vital roles in risk-based zoning, enforcing improved building codes, and promoting resilient construction practices. Federally, there is potential for establishing resilience standards that guide local and state officials in their disaster relief programs while prioritizing the development of robust infrastructure.
“Governments at all levels are crucial in scaling local resilience and collaborating with the insurance industry,” Golnaraghi asserts. This united approach can pave the way for a shared vision in addressing increasing insurance challenges in hazard-prone regions where unmitigated risks intensify due to growing exposure and vulnerability. As global temperatures rise and extreme weather events become more commonplace, the time for collaboration across sectors—including insurance, government, and environmental action—is not just prudent; it is imperative for safeguarding both communities and economic stability.