Insurance and Climate Change

In the aftermath of the devastating fires that swept through Los Angeles neighborhoods in January, I visited the area to see the damage firsthand and meet with affected customers and employees. It was a heartbreaking scene – families mourning lost homes, businesses facing uncertain futures, entire communities grappling with unimaginable loss. While the full impact of the event is still unfolding, and much remains to be done to support these communities in their recovery, it is important that lessons from a tragedy like this lead us toward better approaches. That means taking meaningful steps to mitigate and adapt to more frequent extreme weather, as well as addressing the underlying factors that leave communities vulnerable to both personal and financial harm. While climate change is rightly cited as an explanation, this is an incomplete answer to a more complex problem. Economic inflation, aging infrastructure and population migration into higher-risk areas have emerged as primary drivers of rising weather-related losses – trends that will likely continue. There is also a constellation of other factors. Consider, for example, the staggering cost of litigation abuse, as well as development decisions and building practices that fail to account for foreseeable extreme weather events. Insurance plays a critical role on the sustainable path forward. At its core, insurance is a cost-sharing mechanism, bringing individuals and businesses together to pool resources through premiums that accurately reflect each policyholder’s exposure to risk. When insurers can properly assess risk and set fair prices, this system functions reliably – even in the face of extreme weather. Importantly, insurance also serves as a crucial barometer of the true cost of building or rebuilding in higher-risk areas, allowing these costs to be properly considered during planning and development. Read more here:

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

🚨 A big UN report just launched: A powerful global resource for insurers, reinsurers & brokers navigating the net-zero transition. “Underwriting the Transition” is the first-ever guide specifically tailored to help insurance and reinsurance companies develop and disclose credible transition plans for their underwriting portfolios. Why it matters: While insurers have made climate commitments, clear frameworks for underwriting strategies have been lacking. This guide provides that. What’s inside: - A structured framework for transition planning - A checklist to assess credibility - Real-world examples from insurers, reinsurers & brokers - Practical insights on disclosure, strategy, and implementation By moving from ambition to action, this report helps the insurance sector lead the way in building a resilient, inclusive, and net-zero economy reaffirming its role as society’s risk manager. 🌍 This is the second deliverable in United Nations Environment Programme Finance Initiative (UNEP FI)'s FIT Transition Plan Project — following “Closing the Gap” launched at COP29 and it lays the groundwork for the next report on total balance sheet guidance linking underwriting and investment strategies, to be launched at COP30. Let's make COP30 a defining moment for insurance climate leadership. #TransitionPlan #Insurance #Reinsurance #Sustainability #NetZero #FIT #UNEP #EIOPA #JustTransition #Underwriting

𝐎𝐩𝐞𝐧 𝐃𝐚𝐭𝐚 𝐂𝐥𝐢𝐦𝐚𝐭𝐞 𝐑𝐢𝐬𝐤 𝐀𝐬𝐬𝐞𝐬𝐬𝐦𝐞𝐧𝐭 𝐓𝐨𝐨𝐥𝐬 – Deep Dive Last week, I shared a post on open data tools for climate risk assessment and their role in climate adaptation. Since it sparked some interest, here’s a follow-up: a closer look at some of the best tools out there. 🦍 UN Biodiversity Lab 🦍 Hosts an amazing 269 datasets on biodiversity, from habitat intactness and ecosystem resilience to socio-economic indicators. – Great extra: national biodiversity statistics for 193 countries. – One highlight (which is integrated into many tools): The „GLC_FCS30“ land-cover map with an incredible 30x30m resolution. ⛈️ WESR Climate ⛈️ I like the tool by the UN Environment Programme because it offers a great framework for analyzing climate change variables: “Drivers” and “Pressures” (what drives climate change), “States” (how it alters Earth's systems), “Impacts” (resulting societal risks) and even “Responses” (what do we do to mitigate them). 🏭 Global Infrastructure Risk Model and Resilience Index (GIRI) 🏭 A collection by the Coalition for Disaster Resilient Infrastructure of an incredible 113 up-to-date and granular datasets on climate risks to buildings and infrastructures. – Great extra: Country-level statistics on average annual losses by climate hazards and infrastructure category. 🏚️ GIS-ImmoRisk 🏚️ Not flashy, but the only tool I know that lets you export building-specific climate risk PDF reports. It even factors in asset details (size, roof shape, windows, …) to assess likely damages by climate hazards. (Covers only Germany.) ❗ Where can you find these and other open climate and nature risk tools? – Click "resources" on the UN Environment Programme's World Environment Situation Room’s website. – Have a look at the MapX tool examples by UNEP/GRID-Geneva. – See the partially free KanataQ tool list. (Thank you, Nawar!) – Check out the tools and resources list of the NOAA. (Thank you, Douglas!) ❗ I’d appreciate hearing your opinion on the tools in this post, which tools you'd recommend, and where to find more. Link to last week's post: https://lnkd.in/dv_GKW83

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

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

🌡️ Another HOT news: April 2025 was the second-hottest April on record. Global temperatures rose 1.51°C above pre-industrial levels, and the 12-month period of May 2024 – April 2025 was 1.58°C above the pre-industrial level. 📊 According to the Copernicus ECMWF Climate Change Service (#C3S), sea surface temperatures remain abnormally high, Arctic sea ice is shrinking, and extreme weather is becoming the new norm—floods, droughts, and heatwaves continue to hit critical regions, from central Europe to the Americas, Australia, and Asia. 💼 how is this affecting business? 📉 Supply chains are increasingly vulnerable to #climate shocks—droughts and floods disrupt #agriculture, #energy, and #transportation. 🔒 Asset risk is rising—coastal infrastructure, industrial zones, and real estate are more exposed to extreme weather and sea-level rise. 📈 Insurance costs and premiums are spiking amid escalating loss events, forcing financial reassessments. 💰 Investor scrutiny is intensifying—businesses are expected to disclose climate risks and align with decarbonization pathways. ⏳ Regulatory and legal risks are growing as litigation over climate accountability increases. 🔍 Continuous monitoring of Earth’s climate system, as done by World Meteorological Organization, is not just science—it’s essential decision intelligence. The private sector must treat this data as a strategic input, not an externality. 📉 Climate change is not a future threat—it’s a present risk multiplier. The time to adapt, act, and transition is now. https://lnkd.in/eJqVzV5D

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

Insurance is quietly reshaping real estate economics. Premiums have surged across the board, not just in high-risk or coastal areas. The impact? 📉 NOI is down 📏 DSCR is tighter 🧐 Underwriting is more conservative ❌ Deals are falling apart post-LOI It is not just cost. Carriers are exiting markets, deductibles are up, and coverage is shrinking. Insurance has gone from a checkbox to a critical deal variable. If you are not stress-testing insurance early and often, you are flying blind in a risk-driven market. Real estate is still about location, but increasingly… it is also about insurability. ♻️ Repost if this was helpful to you and could benefit someone else. 🔔 Follow Raheel Khawaja for daily tips on mindset, money, growth, and real estate — level up your life, one insight at a time.

I am happy to co-author this article with Beatrice WEDER DI MAURO, President of the CEPR - Centre for Economic Policy Research, reflecting on the urgent need to engage in collective thinking and action to adapt our response to the challenge of insurability in the face of escalating climate risks. This article, which captures key convictions from our joint workshop hosted at Collège de France by the AXA Research Fund and CEPR - Centre for Economic Policy Research, couldn't have been more timely.   Devastating floods in Valencia, the wildfires in Los Angeles, the typhoons in Mayotte and La Réunion... These recent climate catastrophes show a clear reality: climate risks are intensifying and the protection gap for local communities and economies are becoming evident. Global economic losses from extreme weather events reached $320 billion in 2024, while in Europe, only 25% of economic losses were insured - leaving individuals, businesses, and communities vulnerable.    To address this, we need to enhance risk-sharing mechanisms and promote partnerships between public institutions and private companies.   Ensuring insurance accessibility and effectiveness is crucial. This can be done through: ➡️ Hybrid models, combining market mechanisms with public-private partnerships, to help ensure broad coverage and affordability. France’s CatNat regime and Switzerland’s hybrid model offer valuable insights. These models can be adapted to regions facing extreme exposure, such as sea level risks. ➡️ Greater investment in prevention and risk-sharing mechanisms. Initiatives like local municipal risk assessments can help small municipalities assess and mitigate local climate risks. ➡️ Impact underwriting, where insurers incentivize policyholders to adopt risk-reducing measures in exchange for lower premiums. ➡️ Public education on climate risks and stronger coordination between insurers, governments, and consumers to ensure preventive measures are taken seriously.   As we move forward, it's clear that policymakers, insurers, and society must work together to strike a sustainable balance between affordability and fiscal viability. This is not just about who pays the bill. It is about how we manage risk in an increasingly uncertain climate landscape. Let's continue to foster collaboration and innovation to close the protection gap and build a resilient future. 👇 https://lnkd.in/er6BkrtZ