Insurers are increasingly moving from playing defense to finding opportunity as they adapt to the rising cost of extreme weather events and other hazards of a warming world.
That was a central theme from a recent conversation convened by the MSCI Institute following our survey on how more than 50 global insurers are responding to rising physical risk in an age of intensifying storms, heat and other hazards.
“This is a sector in transition,” stressed moderator David Carlin, founder of D.A. Carlin and Company and a co-author of the Institute’s survey. “Some people like to say insurance is the plumbing of the financial sector. I actually think it’s the ground we stand on.”
Here are five takeaways:
Physical risk is intensifying but accountability lags
Insurers in every region are concerned about climate-driven physical risk, the survey shows. While 79% of European insurers surveyed say their underwriting is well-prepared, peers in North America and Asia-Pacific are generally earlier in their efforts, explained Pam Palena, MSCI Institute insurance research fellow and survey co-author.
Across regions, insurers rate their own preparedness higher than the industry’s overall, pointing to broader challenges such as uneven adoption of climate tools and fragmented data. At the same time, 69% say climate considerations are not integrated into executive incentives. “When climate risk isn’t built into how performance is measured, it’s easy to get deprioritized,” she noted.
What single change would best close the gap between climate awareness and action?
The costs are spreading
“It’s a déjà vu moment for me,” said Butch Bacani, head of insurance at the UN Environment Programme Financial Initiative. He noted that earlier efforts focused on disaster resilience and forward-looking risk scenarios.
What’s changed, Bacani observed, is that the costs of natural catastrophes – long concentrated in the Global South – are spreading to high-income countries, bringing adaptation and resilience to the forefront. Disasters in the U.S. last year, for example, were the main driver of insured natural catastrophe losses globally. “This is a good moment to better understand and reduce risk so that we can keep markets and assets insurable over time,” he said.
Layered intelligence is gaining traction
Catastrophe models remain central, but most insurers say models based on historical data are becoming less reliable. Enrique Flores Diaz, global climate risk & resilience lead at Allianz, said the insurer supplements catastrophe models with granular climate analytics where available. “We do the pricing calculation in a staggered way,” he explained, noting growing interest from underwriters in support from risk-engineering specialists.
Opportunity in advisory services
Rising physical risk is also creating opportunity. Most insurers see growth in climate risk management and resilience advisory, with 58% citing parametric products as a key focus.
Years of building models, data and expertise put insurers in a strong position to help other industries quantify and manage climate risk, noted Pam Palena. “That accumulated knowledge puts insurers in a unique position to not only manage risk on their own balance sheet, but also to drive innovation in how we assess and price climate risk and resilience.”
The importance of nature
Climate impacts will continue for years, even if emissions fall to net-zero tomorrow, noted Butch Bacani. “Adaptation and mitigation have to be a dual approach,” he stressed, pointing to both “soft limits” that can be addressed with investment and “hard limits,” such as irreversible changes to natural systems.
UNEP FI’s insurance work includes building resilience among micro-, small- and medium-sized enterprises (MSMEs) across emerging markets and helping insurers assess nature-related exposures. MSMEs are especially vulnerable to climate shocks, while work on nature also looks at insuring natural assets. “Ensuring you can restore damage to coral reefs from a hurricane, for example, will really help coastal communities,” he added. “This is an evolving agenda.”
What the market thinks: How global insurers are responding to rising physical risk
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