By Abbas Nazil
The insurance industry must move beyond warning about the growing risks posed by climate change and play a more active role in helping societies adapt to a warming world, according to experts at Chatham House.
The call comes as increasing climate-related disasters, including wildfires, hurricanes and floods, are making insurance coverage more expensive and, in some high-risk areas, increasingly difficult to obtain.
David Gunn, Senior Research Fellow at Chatham House’s Sustainability Accelerator, and Rob Bailey, Associate Fellow at its Environment and Society Centre, said rising insurance costs should not simply be interpreted as evidence that the insurance industry is failing.
They argued that the growing problem of uninsurability is largely a symptom of deeper challenges, including climate change, poor land-use planning, inadequate investment in resilience and decisions that have allowed development in areas exposed to climate hazards.
The experts said insurers are often the first to identify when climate risks have reached levels that make properties and infrastructure increasingly difficult to protect financially.
They warned that blaming insurers could lead governments to introduce policies that suppress premiums or pressure companies to provide coverage at unsustainable rates, potentially worsening the problem.
California was cited as an example where rising wildfire risks have contributed to insurers withdrawing or reducing coverage, while political restrictions on premiums have also made it difficult for companies to charge prices that reflect actual risks.
The experts said the situation demonstrates that climate change alone does not explain insurance market failures, as decisions about development, planning and risk management also determine whether properties remain insurable.
They noted that insurers possess extensive data, risk models and advisory expertise that could help governments, developers and communities understand future climate threats and make better decisions about where and how to build.
Risk-based insurance premiums, although often criticised because they can increase costs for households, can also provide an important warning about the level of climate risk facing particular locations.
According to the experts, insurers can also contribute directly to adaptation by helping design flood defences, building retrofits, resilient infrastructure and other measures that reduce exposure to climate hazards.
They described climate adaptation as a significant economic opportunity, noting that estimates by the UK Government Office for Science put cumulative global adaptation spending at £3.5 trillion over the next decade.
The experts urged insurance companies to engage more closely with national and local governments and to provide specific recommendations on adaptation measures based on the risks identified through their modelling.
They also called for insurers to accept a greater role in public-private schemes designed to address growing climate risks, arguing that such programmes should reduce exposure to hazards rather than encourage further development in vulnerable locations.
Governments, meanwhile, were urged to create mechanisms that allow insurers to participate in adaptation planning from an early stage.
The experts said national and city-level platforms could help coordinate adaptation strategies, mobilise financing and bring together insurers, policymakers, developers and communities.
They also stressed the need for governments to confront difficult questions about which areas should be protected through adaptation and where communities may eventually need to retreat as climate risks become increasingly severe.
They said the retreat of insurance from climate-exposed areas should be viewed not only as a warning about financial risk but also as information that can guide urgent decisions on climate resilience.
According to the experts, using insurance risk information effectively could help societies make difficult choices about development, investment and adaptation while reducing future losses in a rapidly warming world.
