Navigating the Rising Tide of Climate-Driven Insurance Costs

The Impact of Climate Change on Global Weather Patterns

2023 marked another year of significant climate and weather-related challenges, with 2024 poised to present its own set of difficulties. The year 2023 was the warmest on record since 1850, with temperatures exceeding two degrees Celsius above the 20th-century average. The ten warmest years in recorded history have occurred between 2014 and 2023, affecting regions across the globe, from Canada and the southern United States to parts of the Atlantic, Indian, and South Pacific Oceans.

The Economic Toll of Extreme Weather Events

In the United States, Allianz estimates that extreme weather events now cost the country $150 billion annually, making these perils 'key threats' for organizations. Large companies are responding by transitioning to low-carbon business models and enhancing their plans to manage climate events. Allianz emphasizes that supply-chain resilience is a critical focus area for the coming year. Despite the recognition of reputational, reporting, and legal risks as lesser threats, many of these challenges are interconnected.

The Role of Private Insurers in Flood Risk Management

Flood remains a severe and increasing peril in the United States. While the federal government remains the main source of insurance coverage through FEMA's National Flood Insurance Program (NFIP), the private insurance market is increasingly taking on more risk. Between 2016 and 2022, the total flood market grew 24 percent, with 77 private companies writing 32.1 percent of the business. This growing private-sector involvement in flood insurance is expected to lead to greater availability and affordability of coverage as the peril increases and NFIP shifts to risk-based pricing.

To navigate the rising tide of climate-driven insurance costs, it is crucial for individuals and communities to invest in mitigation and resilience. This requires collective responsibility from all levels of government, public-private partnerships, and appropriate alignment of investment incentives for all co-beneficiaries.