The Insurance Industry’s Climate Crossroads

We are witnessing a profound transformation in the insurance industry, driven by one of the most critical challenges of our time: the mounting financial risks associated with increasing excessive heat, wildfires, storms, and floods.

Skyrocketing premiums, major insurers dropping coverage entirely in states, and growing concerns about insurer solvency are not just industry challenges—they threaten the foundation of our economy. The past two years have set alarming records in the U.S., with dozens of billion-dollar weather disasters. In 2023, these events cost over $92.9 billion, while 2024, driven Hurricanes Milton and Helene, is on track to surpass significantly more than $100 billion in damages, according to the latest estimates.

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As catastrophic flooding, fires, heat, and other unnatural disasters become more frequent and severe, insurers are uniquely positioned to leverage their risk expertise and economic influence to advance the responsible business practices and innovations in clean energy technology that will help them mitigate the risks they and the communities they serve face.

Ceres developed a comprehensive roadmap for the insurance industry in a world with increasing weather risks. From mandatory climate risk disclosure to innovative pricing models, from climate-resilient building codes to equitable accessibility measures, this plan outlines how insurers, regulators, local governments, and investors can work together to help the industry withstand and adapt to the growing impacts of natural disasters. This isn’t about incremental adjustments; it’s about a fundamental reimagining of how insurers and key stakeholders can work together to continue serving high-risk markets while protecting their bottom line.

Support Mandatory Climate Risk Disclosure

One key area for industry action is in disclosure. Information gaps in climate risk are one of the most significant challenges facing the insurance industry. Enhanced transparency would enable insurers to better understand their risk exposure, develop more accurate pricing models, and make more informed underwriting decisions. Without standardized requirements for all businesses—including insurers—to disclose their climate risks and mitigation strategies, insurers lack critical insights into their climate risk exposure.

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A bipartisan taskforce of state insurance regulators backed by the National Association for Insurance Commissioners has taken the lead by requiring corporate climate disclosure for the larger insurers. As a next step, the industry must require mandatory, transparent transition plans aligned with specialized frameworks like the UN’s Forum for Insurance Transition to Net Zero. Such an approach would not only help insurers reduce their exposure to weather risks but would also provide much-needed transparency and accountability into how they are approaching these risks for their customers.

Use Predictive Climate Modeling

Historical data alone can no longer reliably predict future losses. New patterns of extreme weather events make it difficult to accurately price risks, leading to either underpricing that threatens solvency or overpricing that makes coverage unaffordable. Given rising economic uncertainty, insurers must increase investments in advanced predictive modeling and AI technologies to enhance risk assessment and pricing accuracy. These investments not only ensure more accurate pricing but also send market signals that encourage policyholders to adopt mitigation and adaptation measures.

Shape Effective Policies

The industry’s long-term resiliency depends on the key actors in the industry working together. No single insurer can tackle the costly challenges of climate risk alone. Industry-wide initiatives, public-private partnerships, and working with policymakers are essential to creating the regulatory and market frameworks needed for a resilient future. Insurers can use their unique insights into risk to shape effective policies, including stronger building codes, floodplain management, and cutting carbon pollution, all of which prevent or reduce losses from extreme weather events.

We stand at a critical juncture. The insurance industry has the opportunity and the business imperative to drive industry and economic resilience in the face of massive risk. By embracing innovation, collaboration, and a forward-looking approach, insurers can transform a potential crisis into an avenue for growth.