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An annual scorecard for insurance companies has found they are ‘fundamentally misunderstanding’ climate risks.
ADVERTISEMENTClimate change has been behind over a third of all weather-related insurance losses over the last 20 years, a new report from the campaign group Insure Our Future has found.
In total, that is an estimated $600 billion (€567 billion) in losses from climate change – an immense price tag insurance providers have been passing on to policyholders.
Few regions have been spared in 2024. The UK, for example, saw $190 million (€180 million) in insured losses from Storm Henk’s extreme rainfall. This rainfall is estimated to have been made four times more likely by climate change.
Europe saw its second-highest insured losses from flooding ever this year, according to Swiss Re Institute’s estimates. Estimated losses from natural disasters are expected to exceed $135 billion (€128 billion) in 2024 alone.
Insure Our Future’s annual scorecard for insurance companies warns that urgent action is needed to tackle escalating climate risks that could leave vulnerable communities completely unprotected.
Rising emissions are driving up losses
Over the last decade, losses attributed to climate change have risen from 31 per cent of all weather-related losses to 38 per cent.
This growth in the share of overall weather losses shows decarbonisation is crucial to tackle soaring insurance costs, the report says.
“Insurers are fundamentally misunderstanding climate risk by failing to recognise how greenhouse gas emissions have driven up losses throughout this century,” said Professor Ilan Noy, climate attribution economist at Te Herenga Waka – Victoria University of Wellington and author of the largest peer-reviewed study on how much climate change contributes to weather extremes.
“Unless we cut emissions sharply this decade, climate damages will grow exponentially and could overwhelm both insurers and economies.”
Insurance is also being pushed out of reach for many vulnerable communities, as companies manage rising costs by increasing premiums or even withdrawing coverage completely from high-risk areas.
“Insurers are taking advantage of an unstable climate to generate record profits, to the detriment of their customers and the benefit of their shareholders,” says Ariel Le Bourdonnec, insurance and reinsurance campaigner with Reclaim Finance, which carried out research for the report.
“Indeed some appear to be gaming the system, refusing to provide cover against growing climate risks, while fuelling the problem by insuring fossil fuel expansion.”
Fuelling the problem by insuring fossil fuel expansion
Continued fossil fuel expansion, which causes emissions to grow further, relies on essential insurance coverage. Underwriting fossil fuels, however, is becoming economically dubious for insurance firms.
The report’s analysis of 28 top global property and casualty insurers found that their estimated share of climate-attributed losses at $10.6 billion (€10 billion) rivalled the $11.3 billion (€10.7 billion) in direct premiums they underwrote for commercial fossil fuel clients in 2023.
For seven companies in Europe, including Allianz, AXA, Aviva and Zurich, losses of $3.23 billion (€3.1 billion) exceeded coal, oil and gas premiums, which totalled $2.20 billion (€2.1 billion).
ADVERTISEMENTOn average, fossil fuel premiums make up under 2 per cent of total premiums too, a miniscule share of the market. It raises questions about why insurers are not using their outsized influence on the fossil fuel sector to protect the other 98 per cent of their business against spiralling climate risks.
As fossil fuel use declines, climate losses are still rising. Insure Our Future asks why insurance companies are “choosing a path of climate destruction that harms their own bottom line as well as society at large”.
At the same time, the renewable energy insurance market was still under 30 per cent of the size of the fossil fuel insurance market in 2023, threatening to become a bottleneck for clean energy investments.
Voluntary actions fall far short of what is needed
Insure Our Future says the insurance industry as a whole has stalled on effective climate action while abandoning communities worldwide to face growing risks without protection.
ADVERTISEMENT“The evidence is undeniable – climate change represents an existential risk for the insurance industry,” writes former California insurance commissioner Dave Jones and senior British actuary Dr Louise Pryor in a joint foreword for the report.
“The insurance industry has historically helped make societies more resilient. Now it must embrace its power and accelerate the transition to clean energy, stop underwriting new fossil fuel projects, and rapidly align with credible 1.5°C transition pathways.”
But voluntary efforts fall far short of what is needed with the number of insurers putting restrictions on fossil fuels barely increasing from the last version of the report.
Some, like Italian insurer Generali, are doing far more than others. In October, it adopted the first fossil fuel restriction policy that covers the entire oil and gas value chain and includes in its scope new methane LNG projects that threaten climate targets.
ADVERTISEMENTThe campaign group says the window for voluntary corporate action is rapidly closing. Regulators, it adds, now need to intervene in how insurers are managing climate risks.
