Global insurers are partnering with stakeholders, including governments and environmental groups, as they adapt to the impact of climate change.
Collaboration – with partners both inside and outside the traditional insurance industry – is becoming a necessity for a global business that has absorbed $154 billion in insured losses generated by natural catastrophes last year alone.
That figure is 27% above the 10-year average, according to a recent report by Gallagher Re, which estimates that natural perils – from wildfires in Los Angeles to flooding in Valencia to deadly landslides in Southeast Asia – created direct economic costs of $417 billion in 2024. Private and public insurance entities covered 37% of that total, with the US alone accounting for $117 billion in insurance losses.
Rather than hiking premiums or pulling out of high-risk markets completely, the industry aims to minimize future losses by working with reinsurers, brokers, and other industry experts while reaching out to local governments and environmental groups, climate and technology experts, and even international agencies.
“Pulling out of a market is not a decision that anyone is going to make lightly.”
Dale Porfilio, Insurance Information Institute
“No one country is going to solve this problem on its own,” says Maryam Golnaraghi, director of climate change and environment at The Geneva Association, a Zurich-based think-tank for the global insurance industry. “The solution is going to take all of society working at different levels and different stages to develop incentives and solutions.”
This month, the association is releasing a report based on nine months of collaborative effort between the industry, academic institutions, climate-risk modelling firms, mortgage and lending regulators, and international organizations. The document, which will lay out methods to safeguard access to home insurance amid the global surge in extreme weather risks, is focused on developed economies with mature insurance markets: Australia, Canada, the EU, Japan, the UK, and the US.
Financials at global insurers/reinsurers remain strong. Global reinsurer capital increased by $45 billion to $715 billion last year while reported equity rose by $38 billion to $600 billion, continuing a recovery that began in 2022, according to Aon, a global professional services firm.
“Higher retentions and tighter coverage again insulated reinsurers from the worst effects of the elevated natural catastrophe activity in 2024,” said Mike Van Slooten, head of market analysis for Aon’s reinsurance solutions in London, in a recent Aon report.
Looking For Climate Risk Solutions
As part of the collaborative effort to keep the industry financially resilient, some industry stakeholders are zeroing in on climate risk solutions, says Peter Miller, president and CEO of The Institutes, a not-for-profit in Malvern, Pennsylvania, with expertise in risk management and insurance.
Global reinsurers, for example, are investing heavily in climate research and modelling capabilities to assist insurance brokers in developing specialized climate advisory services that help clients understand and mitigate their exposures. Industry associations are creating frameworks for climate risk disclosure and management while insurance technology firms are introducing data analytics and parametric products for climate perils. And ratings agencies continue to weave climate considerations into their assessment methodologies.
“The industry recognizes climate change as a systemic risk that requires significant adaptation,” says Miller. “Continuing business as usual would lead to market disruptions and coverage gaps. Industry leaders view climate change as a transformational force rather than just another risk factor. They’re investing in capabilities to understand, price, and manage climate risks while engaging with policyholders on adaptation measures.”
In the wake of a natural disaster, insurers are the “financial first responders,” says Dale Porfilio, chief insurance officer at the Insurance Information Institute (Triple-I), an insurance trade association. “We are here for that risk transfer and to make people whole.” Yet, the greater frequency and severity of natural disasters—from floods to hurricanes to wildfires—along with increased repair and rebuilding costs is spurring insurers in the US to collectively reassess their risk appetite for residential property.
“Can we continue to insure every single house in the way that we once did, based on the cost and the relative risk?” says Porfilio. As a risk-based product, policyholder premiums must reflect what losses are expected to be in the upcoming year. “Pulling out of a market is not a decision that anyone is going to make lightly.”
State insurance commissioners in the US, who can be elected officials, direct greater scrutiny to the pricing of residential property, he adds. Homes located along coastlines and waterways and in hills and canyons frequently carry greater exposure to natural disaster risks than commercial properties, which tend to be located inland and closer to central transportation areas.
Organizational Deep Dive
Risk managers and insurance brokers are reaching out directly to these corporate clients with new products and expertise to help them understand climate adaptation and manage their risks.
“We help organizations become resilient to extreme weather, now and for the future, by leveraging our suite of climate adaptation capabilities,” says Nick Faull, London-based head of climate and sustainability risk at Marsh, a global insurance broker and risk management advisor. Marsh counsels executives to consider extreme weather events on two levels: assets and systems.
“How will assets, including buildings, people, and operations as well as emergency response processes, be impacted?” Faull says. Secondly, managers must determine how extreme weather events will impact the broader organization: “particularly through the impacts on suppliers but also on critical infrastructure, resources and ecosystem services, customers, and on the communities in which it operates. In addition, what impact will be changing regulations and capital provider expectations have?”
By comprehensively monitoring their supply chains—Marsh’s parent, Marsh McLennan, offers an AI-powered tool called Sentrisk—companies can better prepare for extreme weather events. As an example, Faull cites a UK company that learned a supplier, deep in its supply chain in Southeast Asia, was at high risk of flooding, leaving the company exposed to significant disruption.
“With better information, the company is able to build resilience into its supply chain to avoid future disruption,” he says.
In collaboration with Floodbase, a parametric flood expert, and Swiss Re Corporation Solutions, Aon launched a parametric insurance solution in February that promises to address and mitigate losses from hurricane-related storm surges along the US coast using a range of meteorological data sources. Rather than aligning pay-outs to traditionally adjusted physical damage, like an indemnity insurance product, Aon bases them on water height. Policyholders can select the level of pay-out they require for a certain level of storm surge, with a rate calculated accordingly. The proceeds can be used for any financial loss associated with the event, addressing a substantially broader set of exposures than traditional insurance.
Hurricane Helene was the single most devastating natural catastrophe of 2024, according to Aon’s 2025 Climate and Catastrophe Insight report, responsible for approximately $75 billion in economic losses, mainly due to US inland and coastal flooding. A parametric solution helps bolster existing levels of cover and provides liquidity, says Cole Mayer, head of parametric solutions at Aon. Used as a standalone product or with traditional and non-traditional insurance policies, it offers corporates more comprehensive protection, he says, noting that for some hurricane events, storm surge damage can account for more than one-third of the total loss cost. The industry is also turning to conservation groups and governments as key collaborative partners.
In Canada, Nature Force, which includes 15 insurers and Ducks Unlimited Canada, has invested in wetland restoration to reduce flood risk in urban communities, says Golnaraghi. Local and state governments can focus on risk-based land zoning, enforce updated building codes, and promote fortified building certification. Federal and national governments, in turn, can lay down standards of resilience that local and state officials must meet in their post-disaster aid programs and place a priority on constructing large-scale resilient infrastructure.
“Governments at all levels are crucial in scaling local resilience and collaborating with the insurance industry,” Golnaraghi says. “Together, they can develop a shared vision for hazard-prone areas where insurance challenges are rising due to an increase in unmitigated risks linked to growing exposure and vulnerability.”
