Insuring our future: how the insurance industry is shaping the climate change response

May 15

5 min read

In 2024, Europe recorded its warmest year ever (1), a strong signal that climate change is an actual and accelerating reality. From catastrophic floods affecting over 413,000 people (2) to prolonged droughts across the Mediterranean, the financial and human costs of extreme weather events are rising rapidly.

While much of the global focus remains on reducing carbon emissions and scaling renewable energy, another influential force is quietly shaping the climate response: the insurance industry. Traditionally viewed as a mechanism for pricing and transferring risk, insurers are now assuming a broader role, one that helps communities anticipate, adapt to, and recover from climate-related shocks.

But what does this evolving role look like in practice? And how can an industry rooted in data, forecasting, and long-term strategy become a key driver in the global effort to combat climate change?

What is at stake?
Insurance as a risk transfer mechanism
Insurance as risks modeler
Driving climate resilience
Innovation and collaboration
What is next?

What is at stake?

Belgian citizens still remember the floods from 2021 that brutally hit more than 85,000 people (3). Those floods resulted in an impressive increase in insurance claims related to natural catastrophes, jumping from EUR 368 thousand in 2020 to more than EUR 2.8 million in 2021 (4). In the last five decades, the cost of such natural extreme events has increased by 77%, and it's expected to keep rising (5). To absorb these escalating risks, insurers face a choice: raise premiums to unaffordable levels or withdraw coverage altogether. Neither path is sustainable, sooner or later, protection gaps will widen, leaving the most vulnerable exposed and the entire model under pressure.

Insurance as a risk transfer mechanism

Originally, insurance is a tool for transferring risk, protecting individuals, businesses, and governments from external shocks. As climate change intensifies the frequency and severity of extreme weather events, the insurers' role becomes increasingly critical.

From agricultural producers facing crop failure due to droughts, to homeowners navigating the rising threat of floods and wildfires, insurance provides a financial safety net that enables recovery and continuity. Yet today, some sectors are approaching, or have already reached, a tipping point where risks are no longer insurable. Agriculture is already heavily impacted. Vineyards in southern Europe, for instance, are struggling to secure coverage against heatwaves and hailstorms, while parts of the real estate market in high-risk coastal zones are seeing insurers withdraw entirely. In these cases, the traditional model of risk transfer is breaking down, leaving businesses and communities increasingly exposed.

But this is more than just reactive support. Modern insurance products are evolving to proactively address climate risks.

Insurance as risks modeler

At the heart of an insurer's business is the ability to model, price, and manage risk, striking a careful balance between expected returns and potential losses. However, as climate change accelerates, bringing more frequent and severe natural disasters, traditional risk prediction models are being stretched to their limits (6).

The growing volatilty and uncertainty make it increasingly difficult to forecast future events with confidence. This not only complicates underwriting but also casts a shadow over investment strategies. As the probability of long-term economic shocks rises whether from extreme weather, resource scarcity, or disrupted supply chains, insurers are facing new challenges in assessing the stability and resilience of their asset portfolios.

If insurers lose the ability to reliably model and price risks, the consequences are existential. The entire insurance model depends on predicting the likelihood and cost of future events with enough accuracy to ensure solvency, profitability, and trust. When climate-driven events become too erratic, interconnected, or novel for existing models to capture, the foundation begins to crack.

Driving climate resilience

Insurance does not only absorb risks, but it also shapes behaviour. As underwriters of global risk, insurers have a unique ability to influence decision-making through the way they price and structure policies. This influence is becoming a powerful lever for climate resilience.

Insurers are now offering incentives for clients who adopt sustainable practices. For example, property owners who invesst in fire-resistant materials or elevate structures in flood-prone areas may benefit from reduced premiums. Car drivers limiting the travelled kilometers also obtain reduced premiums. On the corporate side, insurers are increasingly incorporating climate risk assesments into coverage decisions, pushing companies to disclose environmental vulnerabilities and adopt more robust mitigation strategies.

Insurance is moving from being a passive responder to climate disasters to an active partner in building a more resilient world.

Innovation and collaboration

To meet the growing complexity of climate risk, insurers are expanding their role well beyond traditional coverage. Innovation today is not limited to products and technology. It also includes new forms of collaboration and strategic support, particularly for the corporate sector.

Across the globe, insurers are partnering with governments, development banks, and NGOs to close protection gaps and strengthen resillience. These collaborations have led to the development of climate risk pools, sovereign insurance programs, and public-private schemes designed to protect vulnerable populations and regions (7). By pooling resources and knowledge, these initiatives allow for broader, more inclusive coverage and faster recovery after disasters.

At the same time, insurers are becoming key partners for corporations navigating an increasingly volatile risk landscape. As businesses face growing scrutiny under frameworks like the Task Force on Climate-related Financial Disclosures (TCFD), insurers are stepping in to help assess and quantify climate-related risks, both physical and transitional. Through data-driven analysis and scenario modeling, they support companies in identifying vulnerabilities across assets, supply chains, and operations. By doing so, they not only enable more resilient operations but also contribute to improved ESG performance and risk transparency, which are critical factors for investors and stakeholders alike.

In supporting both public resilience and private risk management, the insurance industry is becoming a key player in the broader climate adaptation agenda using its unique expertise to foster preparedness, stability, and long-term thinking across sectors.

What is next?

As the climate crisis intensifies, insurers must move beyond their historical roles as passive risk carriers. The future demands that they step into leadership positions, driving both climate adaptation and mitigation, while embedding sustainability at the heart of their operations.

This transformation starts with a shift in mindset: insurance can no longer function in isolation. It must be integrated into a systemic climate resilience framework, supporting not only recovery after events, but also actively reducing exposure to future risks.

To remain relevant and impactful, insurers should focus on:

redesigning underwriting strategies to reward sustainable behaviour and discourage climate-negative practices while implementing reassessment of the expected impacts from those incentives and the actual ones;
reallocating investment portfolios to accelerate the transition to low-carbon, regenerative economies grounded in clear, measurable climate alignment;
innovating products and services that equip businesses and communities to anticipate, absorb, and adapt to climate shocks such as parametric insurances or climate- and nature-aligned insurance solutions.

Ultimately, the decisions insurers make today are about more than risk, they are about shaping the conditions for a livable, equitable future. The tools to lead this transformation exist. The real question is: will the industry rise to meet the moment?