Ilan Noy writes:

The impact of climate change on insurance markets has been systematically underestimated, with profound implications for financial stability and the sustainability of the risk-sharing services insurance provides.

In my research on the economic impacts of climate change and other disasters, I’ve observed a persistent pattern: insurers treat climate change primarily as a future risk while failing to recognise how it has been transforming the risk landscape for some time now. This misunderstanding is now coming home to roost as insurers abruptly withdraw from markets or dramatically hike premiums, creating economic shockwaves which should concern those charged with maintaining stability in the insurance industry and financial system more broadly.

The situation is more precarious than many realise. As 2024 is set to become the first year to breach 1.5°C of warming – even temporarily – we are already within the uncertainty range for five major climate tipping points. These are thresholds such as the potential extinction of coral reefs or dramatic shrinking of the Amazon rainforest which, once crossed, trigger self-reinforcing cycles of irreversible change. The financial implications of crossing such tipping points are impossible to price, yet they depend directly on today’s emissions choices.

Even before these tipping points are crossed, the changes in the climate are creating turmoil in the insurance industry. A new analysis reveals that climate change accounts for approximately US$600bn in insured weather-related losses between 2002-2022. Even more alarmingly, climate-attributed losses are now growing at 6.5% annually compared to 4.9% for insured weather losses, rising from 31% to 38% of the total share over the last decade. [Continue reading…]