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The Impact of Climate Risk on Insurance


  • U.S. property reinsurance rates increased by up to 150% during the January 2023 renewals in areas worst hit by hurricanes.
  • Per Deloitte, insurers should use advanced analytics to improve risk assessments and work with policyholders, policymakers, and administrative agencies to address climate change.

Natural disaster losses are mounting. Forecasters warn that we will see even worse conditions in the future. Because insurance companies pay claims caused by climate change, they have a lot at stake. In the coming years, we may see insurers take an even more proactive stance in managing climate change risks, while navigating legal, financial and environmental complexities.

The Cost of Climate Change

Climate predictions are dire. According to the National Oceanic and Atmospheric Administration (NOAA)1, increases in temperature could result in the average American experiencing 27 to 50 days a year of temperatures over 90 degrees Fahrenheit by the middle of this century. Plus, the U.S. coastline could rise by 10 to 12 inches by 2050. As a result, $106 billion worth of coastal property might end up below sea level and crop yields may decline by 10%. Storms are also expected to become more severe, increasing annual hurricane losses by $7.3 billion.

Some of the effects of climate change are already playing out. Each year, NOAA2 tracks the number of weather and climate disasters with CPI-adjusted losses of at least $1 billion. Between 1980 and 2022, the annual average has been 8.1 events. In recent years, however, this figure has shot up: between 2018 and 2022, an average of 18 events occurred each year. As of August 8, 2023, there have already been 15 confirmed weather/climate disaster events that impacted the United States with damage costs each exceeding the $1 billion-dollar threshold.

The impact on insurance has been noticeable. Reuters3 says reinsurers are cutting their exposure to hurricane risks. U.S. property reinsurance rates increased by up to 150% in the worst-hit areas during the January 2023 renewals. Insurance companies have also begun reducing their risk exposure. Both State Farm and Allstate recently stopped selling new property insurance policies in California. In a May 2023 press release, State Farm explained that their decision was due to ‘historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”4 Insurance Journal5 reported that a key factor affecting these withdrawals could be the inability for insurers to adequately price evolving wildfire risk associated with climate change.

The Role of Insurers in Controlling Climate Risk

KPMG6 points out that insurers have a critical role to play in the fight against climate change – and not just because insurers pay claims for climate-related losses. Insurance companies can also make long-term investments in infrastructure and provide risk management advice to help fight climate change.

Per Ryan Vigus, EVP, Personal Lines Product, CSAA Insurance Group, in the Reuters Future of Insurance USA 2023 report ‘Rising to Reframe Risk’: “the insurance industry has a unique opportunity and obligation to change the path that society is on” to become part of the solution by helping customers make better choices. He sees product design having an important role, through providing “potential discounts, or [by changing] the price and underwriting rules for building homes better”.7

The financial incentive to act is strong. Deloitte8 says insurers can no longer afford to avoid addressing climate change. The steps they can take to prepare include working with policyholders, policymakers, and administrative agencies and using advanced analytics to improve risk assessments.

Prioritizing Climate-Focused Insurance Opportunities

Insurers can also use the changing climate to find opportunities. In an interview with Insurance Thought Leadership9, Alex Wittenberg, a partner with Oliver Wyman, discussed the possibility of new insurance products, giving the example of products that could cover risks associated with carbon credits and voluntary carbon markets (VCMs). VCMs are markets where companies and individuals trade carbon credits on a voluntary basis. They play an integral role in driving investment in carbon-compensation and carbon-neutralization projects to offset emissions. Per Wittenburg, many of these new market mechanisms will require products that go beyond what is available in the insurance industry today.

Taking that concept further, McKinsey states that insurers should be prioritizing commercial climate-focused opportunities that catalyze new markets, like accelerating the development of VCMs by providing protection to both buyers and sellers. They also anticipate new opportunities to arise that would involve the insurance industry supporting the reduction of risk along the value chain – from manufacturing to deployment to production – such as providing coverage in the event of reduced production from a green asset.10

Tackling Climate Change and Achieving Net-Zero Goals

As the UN11 explains, “net zero” refers to a commitment to cut greenhouse gas emissions (GHGe) to as close to zero as possible. This will require replacing coal, gas, and oil with solar, wind, and other renewable energy sources. More than 70 countries have set net-zero targets, and more than 3,000 business and financial institutions are working with the Science-Based Targets Initiative to reduce emissions. Additionally, more than 400 financial institutions have pledged to halve emissions by 2030 as part of the Race to Zero program.

In April 2022, The Hartford announced its commitment to achieve net zero GHGe across its full range of businesses and operations by 2050 in alignment with the Paris Climate Agreement.12 This was in addition to its target to operate with 100% renewable-energy-source consumption for its facilities by 2030. In September 2022, they reported that they had launched a focused effort to determine the most appropriate methodologies and standards to measure their progress.13

Global insurance provider AXA committed to transitioning its insurance, reinsurance and investment portfolios to net-zero GHG by 2050 to support the goals of the Paris Climate Agreement. By the end of 2022, it had already exceeded its original 2025 decarbonization goal of 20%, reaching a 35% reduction level of its carbon footprint of general account investments. On June 29, 2023, AXA set a new intermediate goal to increase its reduction of its general account assets by 50% by 2030. In addition, AXA has committed to engaging with its top 200 largest commercial clients globally to increase their knowledge around global climate impacts, as well as gain an understanding of "their [clients’] unique risks and needs with regards to the climate transition”.14

The Future of Insurance

Insurers have a lot to think about as they contemplate their futures. They need to focus on long-term goals related to cutting greenhouse emissions and controlling climate risk, but they also can’t forget about concerns related to customer experience and retention. A modern digital payment solution can help with the latter. At One, Inc we provide seamless digital payment experiences that allow insurers to deliver more to their customers. Learn more.


  1. NOAA - https://coast.noaa.gov/states/fast-facts/climate-change.html
  2. NOAA - https://www.ncei.noaa.gov/access/billions/
  3. Reuters – https://www.reuters.com/business/finance/reinsurers-cut-russia-ukraine-policies-jan-1-broker-2023-01-03/
  4. State Farm https://newsroom.statefarm.com/state-farm-general-insurance-company-california-new-business-update/#:~:text=State%20Farm%20General%20Insurance%20Company%C2%AE%2C%20State%20Farm%27s%20provider%20of,not%20impact%20personal%20auto%20insurance.
  5. Insurance Journal - https://www.insurancejournal.com/news/west/2023/06/07/724354.htm
  6. KPMG - https://kpmg.com/xx/en/home/insights/2021/11/regulating-for-climate-change-in-insurance.html
  7. Reuters - https://1.reutersevents.com/LP=35707?utm_campaign=5826-09AUG23-WK-4-TA&utm_medium=email&utm_source=Eloqua&elqTrackId=1380f4f480c04788bb9c57b4ac6f5ceb&elq=34a26931bc8545b2a1396a82b56dd52a&elqaid=85770&elqat=1&elqCampaignId=76547
  8. Deloitte - https://www2.deloitte.com/us/en/pages/financial-services/articles/insurance-companies-climate-change-risk.html
  9. Insurance Thought Leadership - https://www.insurancethoughtleadership.com/resilience-sustainability/interview-alex-wittenberg
  10. McKinsey - https://www.mckinsey.com/industries/financial-services/our-insights/capturing-the-climate-opportunity-in-insurance
  11. UN - https://www.un.org/en/climatechange/net-zero-coalition
  12. The Hartford - https://newsroom.thehartford.com/newsroom-home/news-releases/news-releases-details/2022/The-Hartford-Announces-Goal-Of-Net-Zero-Greenhouse-Gas-Emissions-For-All-Operations-By-2050/
  13. The Hartford - https://s0.hfdstatic.com/sites/the_hartford/files/net-zero-approach-september-2022.pdf
  14. AXA - https://www.axa.com/en/commitments/axa-net-zero-strategy-for-investment-and-underwriting

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