Climate change cost insurers $600bn over past two decades, says campaign group

The insurance industry is fundamentally underestimating the impact of climate change, with more than a third of insured weather losses attributable to climate change over the past two decades, according to a report from climate campaigners Insure Our Future. The group’s eighth annual scorecard report finds that climate change caused an estimated $600bn of global insured weather losses between 2002 and 2022, or $30bn each year on average. In 2022, $52bn out of $132bn of insured losses were climate-attributed, according to the study, which applied peer-reviewed climate attribution science to industry loss data from Aon, Gallagher Re, Munich Re, Swiss Re and Verisk. Risalat Khan, senior strategist at Insure Our Future, said climate change is accounting for a larger and larger share of industry weather losses over time. Climate-attributed losses have risen from 31% to 38% of total insured weather losses over the past decade, while the 6.5% annual growth in climate change attributable losses has outpaced 4.9% growth in insured losses, according to Insure Our Future. Khan said the research findings into climate attributable losses are in “stark difference” to the position of insurers, including climate-forward conscious firms. He noted that when giving evidence statements to Australian government inquiries, Swiss Re said climate change plays a relatively small role today in losses, while Allianz says it has not been possible to identify that climate change is directly contributing to weather-related losses. Insurers point to various drivers behind the increased trend in natural catastrophe losses, including higher values, urbanisation, and higher populations and economic activity in catastrophe-exposed regions. According to Khan, climate change attributable losses are in addition to these exposure trends. “Insurers are fundamentally misunderstanding climate risk by failing to recognise how greenhouse gas emissions have driven up losses throughout this century. Unless we cut emissions sharply this decade, climate damages will grow exponentially and could overwhelm both insurers and economies,” says Professor Ilan Noy, climate attribution economist at Te Herenga Waka — Victoria University of Wellington, and contributor to the report. “Lloyd’s and Swiss Re’s framing of the drivers behind rising insured losses show a fundamental misunderstanding of causality, and what climate attribution science has identified in the past 15 years. The impact of climate change is not just a present and future problem – it has already been driving up risks and causing major losses throughout this century. Financial regulators should ensure that independent climate science informs their view of the true costs and risks of the climate crisis – before they overwhelm insurers and economies,” says Noy in the report. Climate change-related losses are passed on to policyholders, acting as an inflationary pressure on premiums, Insure Our Future said. In some cases, these pressures have now reached a breaking point, with a growing protection gap for natural disaster insurance, the report argues. Swiss Re estimates that only 38% of the total economic losses from extreme weather disasters in 2023 were insured. This May’s storms in Southern Germany caused $5bn of damage, of which just $2.2bn was insured, while only $2bn of the estimated $7bn of losses from record floods in Brazil were covered. The catastrophic floods in Valencia, Spain were made twice as likely by climate change, according to scientists at World Weather Attribution (WWA). By continuing to underwrite the fossil fuel industry, the insurance industry exacerbates climate risks, which results in higher premiums or the withdrawal of cover, the campaign group said. “Climate change certainly accounts for a growing proportion of damages from natural disasters, and mechanically when risks increase, insurers increase premiums or even withdraw insurance coverage in the worst-affected regions, and that leads to a growing protection gap, which we already observe in parts of the US and Australia, and is expected to get worse everywhere with the future buildup of climate risk,” said Jérôme Crugnola-Humbert, former sustainable finance policy expert at the European insurance regulator Eiopa. “There are a few regions that are subject to so much physical risk from floods and wildfires that private insurance markets can not cover that alone and will need support from governments – for instance, public private partnerships with the insurance industry. But in many, many cases we can still do something to keep the risks insurable, and insurance affordable,” he said. “Insurers should implement net-zero commitments to minimise further climate change. They should stop supporting new fossil fuel developments and instead use their financial capacity to insure cleaner technologies needed in the energy transition. But they can also do a lot in the area of climate adaptation – for instance, risk prevention before disasters – but also increasing resilience after a disaster – for example through build back better,” said Crugnola-Humbert. According to Insure Our Future, fossil fuel premiums make up under 2% of total premiums on average, raising “serious questions” about why insurers are not using their influence on the fossil fuel sector to protect the other 98% of their business against climate risks. “The same climate risks that are getting worse and worse, underpinned by the essential underwriting services, are injecting unprecedented instability into the other 98% of the business, creating losses, risks for assets, and creating unpredictability for where the next disaster will hit… So why risk this 98% for this small revenue stream. Why does this make economic sense?” asked Khan. The report says that the $10.6bn in climate-attributed losses for 28 top P&C insurers were just under the group’s collective fossil fuel premiums of $11.3bn in 2023. For more than half the companies, the losses exceeded the premium. For seven companies in Europe – including Allianz, AXA, Aviva and Zurich – losses of $3.23bn exceeded their coal, oil and gas premiums of $2.2bn. At the same time, insurers could do more to support the transition, the report says. The renewable energy insurance market was less than 30% the size of the fossil fuel insurance market in 2023 at $6.5bn, compared to $22bn, it found. AXIS Capital, Aviva and Munich Re are the only major insurers that write more direct premiums for renewable energy than fossil fuels, according to Insure Our Future. “We can see the industry is stagnating on its action on fossil fuels, at the same as moving away from communities and covering climate risks,” Khan said. Insure Our Future believes that voluntary corporate actions are falling short, and is calling for regulators in Europe to oversee insurers’ plans for climate risks. The campaign group also wants regulators to require insurers to develop, implement and disclose 1.5°C-aligned transition plans.

Climate change cost insurers $600bn over past two decades, says campaign group

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