The global insurance industry is on the front lines of climate change. Last year alone, insurers worldwide absorbed around $154 billion in insured losses from natural catastrophes, which is a staggering 27% above the prior decade’s average. As wildfires, floods, and storms grow more frequent and extreme, the sector faces mounting payouts and operational strain.
Rather than simply hiking premiums or retreating from high-risk regions, insurers are responding with unprecedented collaboration and innovation. But to remain solvent amid escalating climate risks, insurers are rethinking how they pool risk, model catastrophes, invest in resilience, and partner with governments and policyholders. In short, they’re all in it together.
Rising frequency, rising costs
Climate change is clearly amplifying the frequency and severity of insurable events, driving disaster losses to new heights. The year 2024 was the world’s hottest on record, roughly 1.5°C warmer than pre-industrial times, and it showed in the catastrophe statistics. Reinsurer Munich Re reports that weather-related disasters caused 93% of all losses last year.
Total economic losses from natural catastrophes hit $320 billion in 2024, with about $140 billion of that insured. Both figures are far above long-term averages, making 2024 one of the costliest disaster years on record.
“One record-breaking high after another, and the consequences are devastating,” observes Munich Re board member Thomas Blunck, noting that “the destructive forces of climate change are becoming increasingly evident.”
Insured catastrophe losses have now exceeded $100 billion for five years running, essentially establishing a new normal. Much of this increase comes from so-called “secondary perils” like wildfires, thunderstorms, and flash floods, which have nearly doubled in insured loss over the past decade.
Roughly 57% of 2024’s disaster damages went uninsured, representing an insurance protection gap of around $180 billion, highlighting many communities’ vulnerability. Each devastating event that goes partly uninsured underscores the need for greater resilience.
“These escalating losses are stretching insurers’ traditional playbooks. Pricing models based on yesterday’s weather are proving inadequate when ‘hundred-year’ floods and fires happen far more often. If you’ve reached an exponential part of the curve where suddenly something’s accelerating, it’s almost certain that we are underpricing the risk,” warns Bruce Carnegie-Brown, chairman of Lloyd’s of London.
In practice, policyholders are feeling the heat through rising premiums and even coverage withdrawals. In wildfire-prone California, for instance, insurers non-renewed hundreds of thousands of home policies in recent years as losses became unsustainable. Across many regions, what was once an exceptional catastrophe is becoming expected, which is pressuring the insurance industry to adapt or face an existential threat.
The evolving role of reinsurers
In this high-risk climate, global reinsurers and big insurers are reinventing how they pool risk and model disasters. Reinsurers, or essentially insurers’ insurers, provide a crucial backstop by spreading losses across regions and markets. After a string of costly years, the reinsurance sector has bolstered its financial base. Global reinsurer capital climbed to about $715 billion in 2024.
This strong capital position, coupled with tighter underwriting terms, has helped major carriers withstand the barrage of recent claims. “Higher retentions and tighter coverage” have shielded reinsurers from the worst impacts of 2024’s catastrophes, essentially requiring primary insurers to absorb more of the risk up front. While painful for some insurers, this discipline is injecting stability into the system as it recalibrates for an era of mega-disasters.
A centrepiece of that recalibration is advanced catastrophe modelling. Traditional cat models built on historical data are being overhauled to account for the changing climate. Leading reinsurers like Swiss Re and Munich Re are investing heavily in improved climate analytics and next-generation models. These tools use high-resolution data and forward-looking climate science to anticipate not only the intensity of ‘peak’ events like major hurricanes but also the cumulative toll of smaller events.
Peter Miller, CEO of The Institutes, said, “The industry recognises climate change as a systemic risk that requires significant adaptation. Industry leaders view climate change as a transformational force… They’re investing in capabilities to understand, price, and manage climate risks.”
With more precise modelling, insurers and reinsurers can structure smarter reinsurance treaties and even tap capital markets (through instruments like catastrophe bonds) to diffuse risk. In effect, the global insurance system is one big risk pool that now depends on state-of-the-art analytics to avoid being overwhelmed by any one disaster.
Investment for resilience
Confronted with unprecedented hazards, insurers are also pouring resources into innovative solutions and strategic investments to remain effective. One fast-growing area is parametric insurance, which is coverage that pays out based on a trigger metric (such as wind speed or rainfall) rather than measured damage. In 2024, for example, Aon and Swiss Re launched a parametric flood policy that uses storm surge heights to determine payouts along the US coast. By bypassing lengthy loss assessments, these covers can inject quick cash into stricken communities, complementing traditional indemnity policies. Parametric products are increasingly viewed as a complement to conventional insurance, providing certainty and speed in an age of surprise events.
Beyond new policy types, insurers are making strategic investments in mitigation and technology. Many are actively funding preventive projects to reduce future claims. In Canada, for instance, a coalition of 15 insurers called Nature Force is bankrolling wetland restoration to curb urban flood risk. Insurers are also supporting wildfire fuel management and stronger homebuilding standards.
Many carriers now offer premium discounts to customers who fortify their properties, reflecting a shift from simply paying for losses to rewarding risk reduction. On the tech front, firms are leveraging AI and satellite imagery to refine risk assessment and deploying drones for faster post-disaster surveys. And they are factoring climate resilience into their investments, steering more capital towards renewable energy and climate-hardened infrastructure.
Financially, the industry is adapting its risk appetite to stay solvent. Insurers are raising rates in high-risk zones to better reflect true costs (while negotiating with regulators to allow those increases). Some are scaling back exposure in the most disaster-prone markets, even as they expand into lower-risk lines or regions to diversify. Notably, despite recent turbulence, global insurers’ balance sheets remain solid; industry surplus and capital have grown in the past few years thanks to disciplined underwriting and improved investment yields. This resilience gives insurers the breathing room to innovate.
Partnering with policyholders
Perhaps the most profound shift in the insurance industry’s approach is an embrace of public-private collaboration to combat climate risks. Insurers recognise they cannot keep footing ever-larger bills unless society at large becomes more resilient.
“No one country is going to solve this problem on its own. The solution is going to take all of society working at different levels…to develop incentives and solutions,” observes Maryam Golnaraghi of The Geneva Association.
This ethos is driving joint efforts on multiple fronts. Insurers are sharing their catastrophe models and data with governments and urban planners to inform smarter land-use and infrastructure decisions. They are also strong advocates for stricter building codes and zoning laws that account for climate risks, such as fortified roofs in hurricane zones and fire-resistant construction in wildfire areas. These measures may raise upfront costs, but insurers know they greatly reduce damage in the long run.
Governments, for their part, play a critical role in keeping insurance markets stable as the climate changes. Local authorities can limit development in high-risk floodplains, enforce updated building standards, and invest in protective infrastructure like levees or seawalls. National and state governments set the regulatory ground rules that determine how flexibly insurers can adapt.
For instance, regulators in some regions have begun to accept that premiums must rise in proportion to risk; where political pressure instead caps rates, insurers often respond by withdrawing from those markets, leaving governments to pick up the pieces.
Increasingly, the public and private sectors are finding creative ways to share the burden. In some places, governments act as an insurer of last resort or provide reinsurance backstops to ensure coverage remains available after mega-disasters.
In others, authorities work with insurers on programmes that tie insurance affordability to risk mitigation, such as offering subsidies or lower premiums for homeowners who elevate buildings or retrofit against disasters.
All these efforts rest on recognising that no single entity can shoulder the enormity of climate risk alone.
“Governments at all levels are crucial in scaling local resilience and collaborating with the insurance industry. Together, they can develop a shared vision for hazard-prone areas where insurance challenges are rising due to an increase in unmitigated risks,” Golnaraghi emphasises.
In short, aligning the strengths of insurers (capital, risk expertise) with those of government (policy, infrastructure) is essential to climate-proof communities.
Towards systemic resilience
Faced with the daunting math of climate change, the insurance industry is shifting from a reactive stance to a proactive, resilience-centric model. Insurers today aren’t just focused on premiums and claims. They’re also championing sustainability, driving climate adaptation, and working towards a more resilient future for all. They are harnessing science and data to anticipate future threats, and then communicating those insights to policymakers and the public.
There is a growing realisation that insurability itself is at stake. If climate trends continue unabated, some perils could become essentially uninsurable in the coming decades, posing dire challenges to economies. This prospect is motivating insurers to support broader climate action, from investing in resilient infrastructure to advocating for carbon reduction policies that would limit worst-case scenarios.
Crucially, insurers are increasingly vocal that insurance alone cannot shoulder the burden of a changing climate.
“By favouring the conditions leading to many of this year’s catastrophes, climate change is playing an increasing role. This is why investing in mitigation and adaptation measures must become a priority,” argues Balz Grollimund, Swiss Re’s head of catastrophe perils.
In other words, reducing damage in the first place, through stronger infrastructure, smarter development, and emissions mitigation, is as important as improving the insurance response, and the industry’s evolving playbook reflects this. It blends data-driven risk analytics, prudent capital management, product innovation, and cross-sector partnerships to build a more resilient system.
Ultimately, the insurance sector’s ability to thrive amid climate upheaval will depend on its agility and its alliances. Industry veterans caution that business-as-usual would lead to market disruptions and coverage gaps.
By treating climate change as a transformational challenge, the sector is spurring itself to reinvent many facets of its enterprise. In the battle against climate volatility, all stakeholders (including insurers, governments, businesses, and citizens) truly are all in it together, each with a role to play in securing a more resilient future.