Climate change is no longer a distant scenario for risk teams to model; it is showing up in annual losses, premium hikes and insurer retrenchment, with knock-on effects that reach far beyond household cover.
Ortec Finance recently delved into how climate change could spark an insurability crisis.
As extreme weather escalates, the cost and availability of insurance are becoming a growing financial stability issue, with potential to disrupt mortgage lending, weaken asset values and increase pressure on public finances.
The scale of the shift is becoming clearer in the numbers. Swiss Re estimates that inflation-adjusted insured losses from natural catastrophes, largely climate-related, are rising by 5–7% a year. At the same time, senior industry figures are warning that the sector’s traditional approach to risk transfer may not cope with continued warming. Günther Thallinger from Allianz has cautioned that if global warming reaches 3°C, insurance could become unavailable in large parts of the economy, undermining key foundations of the financial system. On current policy trajectories, Climate Action Tracker suggests the world is heading towards around 2.6°C of warming by 2100.
The concern is that disruption does not require a worst-case temperature outcome to bite, Ortec explained. Even at 2°C warming—widely viewed as plausible within decades—insurance in high-risk regions may become unaffordable for a growing share of households.
Early signs are already emerging across major markets, it said. In the United States, the share of uninsured homes has more than doubled in five years, rising from 5% in 2019 to 12% in 2024, while premiums are reported to have increased by 38%—almost twice the rate of inflation. The Federal Reserve has warned that, within 10–15 years, some regions could become effectively uninsurable, putting mortgages further out of reach.
In Europe, only around 20–25% of catastrophe losses are insured, and the protection gap continues to widen. The Netherlands illustrates how specific perils can fall outside conventional coverage, including flooding risks linked to the North Sea, Wadden Sea and major rivers, as well as “pile rot”, which affects an estimated 800,000 homes; a 2019 Ecorys report put the average cost at €64,000 per house, largely borne by homeowners.
For insurers, this is not only a pricing problem but a business continuity challenge. As physical risks intensify, liabilities rise through larger and more frequent payouts, while premium growth may hit social and political limits if customers cannot pay. After major disasters, the ability of communities and businesses to recover and resume normal activity becomes a material factor in future loss patterns and the sustainability of insurance markets.
Without preventative steps, the insurability problem risks becoming more than a household budgeting issue—turning into a systemic fault line that can undermine housing finance, destabilise markets and deepen the fiscal burden on states.
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