The Insurance Industry Faces Unprecedented Challenges
In early 2025, UK insurers paid a record £226 million in weather-related home insurance claims over just three months. The storm Eowyn battered Ireland and Scotland, leaving nearly a million homes without power. This marked the eighth consecutive quarter where property claims exceeded £100 million ($133 million USD), highlighting a disturbing trend. The issue isn’t isolated to the UK; across the Atlantic, Texas homeowners are experiencing a 43% surge in insurance premiums since 2023. By 2025, the average policy is expected to cost $500 more annually.
Insurers have paid out $41 billion in catastrophe losses over the past five years, primarily due to hailstorms, hurricanes, and floods. In California, major insurers like State Farm and Allstate have stopped issuing new policies, largely due to the increasing risk of wildfires. Climate change is destabilizing the insurance industry, making coverage either unaffordable or unavailable in high-risk areas.
Despite overwhelming scientific evidence, some continue to dismiss climate change as a hoax or a distant threat. However, the reality is starkly different. Climate-driven disasters are disrupting lives, economies, and industries worldwide. The insurance market, once a stable pillar of risk management, is now buckling under the cost of these events. Entire regions are becoming too risky to insure, and premiums are skyrocketing for millions.
The insurance model relies on spreading risk across many policyholders. However, climate change is increasing the frequency and severity of disasters, leading to higher claims and premiums. In 2023, natural catastrophes caused $380 billion in total losses globally, with only $118 billion covered by insurance. The ‘protection gap’ – the difference between total losses and insured losses – is particularly stark in developing countries, where over 90% of disaster losses are uninsured.
Reinsurers, who provide backup coverage to insurers, are raising prices and tightening terms. This has a trickle-down effect, resulting in higher premiums or dropped coverage for consumers. Small and mid-sized enterprises are especially vulnerable, with many finding their business owners’ policy insurance premiums surging or their coverage dropped entirely after consecutive climate disasters.
Climate change isn’t just damaging property; it’s also affecting human health. Heatwaves, wildfires, and floods are leading to more injuries, illnesses, and deaths. Health and life insurers are seeing increased claims and liabilities. In Japan, insurers have introduced ‘heatstroke insurance’ that pays out if policyholders are hospitalized due to extreme heat. Mental health claims are also rising, as survivors of climate disasters often suffer from trauma, anxiety, and depression.
Farmers are on the front lines of climate change, with droughts, floods, and extreme weather destroying crops and livestock, leading to higher insurance claims. In the U.S., crop insurance payouts have soared from under $3 billion in 2002 to over $19 billion in 2022. In India, millions of farmers rely on government-subsidized crop insurance, but many remain uninsured or underinsured, leaving them vulnerable to climate shocks.
The insurance industry is at a crossroads. To remain viable, it must invest in better climate-risk modeling, advocate for stronger building codes, and adapt to the new climate reality. Public-private partnerships to build resilient infrastructure and provide backstop coverage for uninsurable risks are being explored. Some insurers are divesting from fossil fuels and offering premium discounts for climate-proofing homes. However, without significant reductions in greenhouse gas emissions, these measures may not be enough. Tackling the protection gap for those most vulnerable to climate change is now an urgent priority for insurers worldwide.
