Insuring Against Extreme Heat Navigating Risks in a Warming World 2025

The uninsurable world and the insurance protection gap2 Extreme weather events are occurring more frequently with greater intensity and unpredictability, disrupting climate models and challenging risk management strategies for insurers worldwide. Insurance companies are finding that the historical weather patterns that once informed risk models are less reliable in today’s climate risk landscape, leaving industry leaders less certain about how to price policies effectively.23 2024 is projected to mark the fifth consecutive year that the global insurance sector faced over $100 billion in net underwriting losses.24 This means that the insurance industry has paid out an average of $100 billion more in claims than they receive in contributions from policyholders. This loss ratio is entirely unsustainable in the long run.Insurance companies are responding to these climate-driven financial risks by reducing coverage in exposed markets, raising premiums and, in some cases, exiting risk-prone communities altogether.25 At the same time, as insurance rates increase, people forgo coverage – this not only leaves them vulnerable to climate risks but also drives prices even higher as the number of people paying premiums and sharing risks shrinks. This perfect storm makes it more difficult for people in these vulnerable communities to access insurance. It fuels several secondary impacts: preventing individuals from accessing a mortgage, fuelling climate migration, and dragging on macroeconomic stability and growth.Insurers are facing rising exposure to extreme heat, amplifying related climate risks, straining affordability and availability of insurance, and leading to long-term consequences for vulnerable communities. Affordability of insurance requires a paradigm shift in the way society manages extreme weather risks across the life cycle of homes, focusing on reducing exposure and vulnerability. An all-of-society approach is key, empowered by decision-relevant risk information. For example local governments can update zoning and enforce new building codes, utilities can invest in strengthening resilience of critical infrastructure, communities can preserve nature-based ecosystems and homeowners can invest in retrofits or make smart buying choices. National governments could not only invest in risk reduction measures, but also incentivize and encourage insurance uptake over reliance on post-disaster aid. Maryam Golnaraghi, Director, Climate Change and Environment, The Geneva Association 9 Insuring Against Extreme Heat: Navigating Risks in a Warming World