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Climate Change Adaptation Strategies Among Insurers

Climate change has moved decisively from a long-term concern to a central driver of insurance strategy, reshaping underwriting, capital allocation, regulatory compliance, and product innovation.

December 16, 2025 • Estimated Reading Time: 13 minutes

Executive Summary

Insurers today face a dual and accelerating challenge: physical climate risks are already pressuring loss ratios, capital models, and claims volatility, while transition risks—driven by policy shifts, energy-market transformation, regulation, and stakeholder scrutiny—are rapidly becoming equally material to balance-sheet resilience and enterprise value.

This report examines how insurers are adapting to these realities, combining long-term trends in weather-related losses and protection gaps with detailed insights into how industry leaders prioritize adaptation strategies across roles and market segments.

The findings show an industry in active transition. Traditional tools such as underwriting restrictions remain important, but strategic emphasis is shifting toward data-driven decision-making, pricing and product innovation, stronger governance frameworks, and collaborative risk-sharing models.

Collectively, the evidence points to a structural pivot: from reactive risk avoidance toward proactive resilience engineering. Insurers that successfully integrate advanced analytics, harmonized climate-risk data, innovative product design, and public-private collaboration will not only safeguard insurability but also unlock sustainable growth in a climate-altered economy.

1. The Escalating Climate Risk Landscape

Over the past several decades, the number of weather-related disasters has increased dramatically, transforming the operating environment for insurers. This trend reflects not only climate dynamics but also expanding exposure as economic assets accumulate in vulnerable regions.

The near five-fold rise in disaster frequency since the 1970s underscores why historical loss data alone is no longer sufficient. Insurers are being forced to recalibrate catastrophe models, stress test portfolios, and reassess the sustainability of risk transfer in high-exposure geographies.

Loss trends and protection gaps continue to widen. Independent industry analysis documents an almost five-fold increase in the average number of weather-related disasters from the 1970s to the 2010s, underscoring the macro direction of tail events even before layering on transition dynamics.

Economic Losses vs. Insured Losses: A Growing Gap

While total economic losses from natural disasters have surged, insured losses have not kept pace. The result is a widening protection gap that poses both a systemic risk and a strategic opportunity for the industry.

Even in years with elevated insurance penetration, a substantial share of losses remains uninsured. This gap highlights structural affordability challenges, risk retreat in certain markets, and the limits of traditional indemnity-based insurance when faced with correlated, climate-driven losses.

In addition, only about 46% of global weather-related losses are insured, leaving a sizeable protection gap—estimated as a $71B annual revenue opportunity for insurers if capacity and resilience solutions scale effectively.

Europe offers a concrete example of the challenge. Supervisory dashboards indicate that only roughly 23% of total economic losses from extreme weather events are insured in Europe. Without stronger adaptation measures and product innovation, this gap is expected to widen as climate exposures grow and pricing becomes more challenging.

The Protection Gap as a Strategic Signal

Beyond annual volatility, the protection gap reveals a more troubling trajectory: total losses are rising faster than insurance capacity. Absent adaptation—both physical and financial—insurability will continue to erode.

For insurers, this trend reframes adaptation as both a defensive necessity and a growth lever. Closing the protection gap requires innovation in product design, capital structures, and partnerships, rather than simple exposure withdrawal.

2. Adaptation in Practice: How Organizations Are Responding

At an organizational level, insurers and adjacent financial actors are actively experimenting with different adaptation strategies. When asked which approaches are proving most effective in strengthening resilience, respondents converged on four primary levers: analytics, underwriting discipline, innovation, and risk transfer.

Overall Industry Priorities

Across all respondents, pricing and product innovation emerged as the leading adaptation strategy, reflecting the industry’s belief that resilience increasingly depends on how risk is structured and monetized—not simply whether it is accepted or rejected. Portfolio rebalancing and underwriting restrictions remain essential tools but appear more defensive in nature.

Reinsurance and capital-market instruments attracted comparatively limited emphasis, suggesting that while indispensable at scale, these mechanisms are often perceived as less accessible or slower-moving relative to underwriting and pricing decisions.

Role-Based Divergence in Strategy

Strategic priorities shift markedly by seniority:

  • C-suite leaders place strong emphasis on advanced modeling and analytics alongside innovation, reflecting their responsibility for enterprise-wide risk steering and capital optimization.

  • Managers focus disproportionately on portfolio rebalancing and underwriting restrictions, consistent with their proximity to daily exposure decisions.

  • Vice presidents bridge these views, balancing analytical tools with innovation while maintaining awareness of underwriting constraints.

These differences illustrate how climate adaptation manifests differently across governance layers—strategic at the top, tactical at the middle, and hybrid at transitional levels.

3. Where Insurers See Their Greatest Climate Exposure

Understanding how insurers prioritize different forms of climate risk is essential to interpreting their adaptation choices. When asked where the greatest exposure is emerging, responses clustered around four dimensions: transition, physical, reputational, and liability risks.

Aggregate Risk Perception

Across all respondents, transition risk emerged as the dominant concern, narrowly ahead of physical risk. This reflects mounting pressure from regulatory requirements, decarbonization pathways, and shifting stakeholder expectations. Reputational risks also feature prominently, signaling the growing financial impact of ESG credibility.

Sector-Specific Exposure Views

Sectoral differences sharpen this picture:

  • Insurers express heightened concern around reputational and transition risk, reflecting scrutiny from regulators, rating agencies, and policyholders.

  • Bankers balance physical and transition risks, consistent with exposure through both underwriting and financed assets.

  • Investors distribute concern more evenly, reflecting portfolio diversification and indirect exposure channels.

Notably, liability risk remains a secondary concern across most groups—suggesting that litigation risk, while rising, is still perceived as lagging other climate-related threats.

4. The Data and Governance Turn in Climate Adaptation

While our Microsurvey  from November 18 focused on operational strategies, our lates from December 2nd intentionally reframed the same core question—“Which strategies are proving most effective in strengthening resilience?”—through a governance and regulatory lens. This shift reveals a different adaptation hierarchy.

Consensus on Climate-Risk Data Standards

Across respondents, harmonized international standards for climate-risk data ranked highest. This reflects a widespread recognition that fragmented datasets, inconsistent methodologies, and evolving regulatory frameworks are now a central constraint on effective risk management.

Directors and Partners show especially strong alignment on data harmonization, underscoring demand for clarity and comparability in decision-making frameworks.

Disclosure, Incentives, and Partnerships

Mandatory climate-risk disclosure and stress testing emerged as a close second, particularly among VPs and Directors responsible for implementation. Public-private partnerships received moderate but meaningful support, especially among senior leaders who recognize the limits of private capital in maintaining market-wide insurability.

Industry-Specific Emphases

Industry segmentation highlights divergent adaptation philosophies:

  • Insurance respondents prioritize data standards and disclosure, reflecting regulatory intensity and solvency considerations.

  • Bankers emphasize public-private partnerships, aligning with capital-market capacity building.

  • Consultants place strong weight on incentives for green underwriting and investment, reflecting an advisory focus on innovation and sustainability-linked growth.

5. Synthesizing the Findings: From Risk Avoidance to Resilience Engineering

Taken together, the charts and survey insights point to a clear narrative shift. Traditional climate adaptation tools—exposure withdrawal, exclusions, and underwriting retreat—are no longer sufficient on their own. Instead, insurers are increasingly focused on:

  • Engineering insurability through data-driven pricing and product design

  • Embedding adaptation incentives into underwriting and capital structures

  • Aligning governance and disclosure frameworks with forward-looking risk realities

This evolution reflects not optimism about climate risk, but realism about its permanence. Insurers are no longer planning for climate change as a tail scenario; they are restructuring business models around it.

6. Strategic Implications for Insurers

Several implications emerge clearly:

  1. Data is the foundation of adaptation. Without harmonized, decision-grade climate data, innovation and capital efficiency remain constrained.

  2. Product innovation is the front line. Parametric structures, usage-based pricing, and transition-linked covers offer scalable responses to climate volatility.

  3. Governance determines speed. Firms that integrate climate risk into capital planning and disclosure frameworks will adapt faster—and more credibly—than peers.

  4. Collaboration is unavoidable. Protection gaps cannot be closed without public-private coordination and reinsurer alignment.

Conclusion

Climate change adaptation has become a defining capability for insurers, not a niche competency. As physical and transition risks intensify simultaneously, success will hinge on the industry’s ability to blend analytics, governance, product innovation, and partnership into a cohesive resilience strategy.

The evidence is clear: insurers are no longer debating whether to adapt, but how. Those that treat adaptation as a strategic growth platform—rather than a compliance exercise—will be best positioned to preserve insurability, attract capital, and lead in a climate-altered economy.

Sources & References

Insights150. (2025). Climate Transition Risk Insurance: What Insurers, M&A Teams, and Investors Should Do Next. https://insights150.com/p/climate-transition-risk-insurance-what-insurers-m-a-teams-and-investors-should-do-next 

Insights150. (2025). Climate Risk in Focus: How Insurance Leaders See Their Greatest Exposures Emerging. https://insights150.com/p/climate-risk-in-focus-how-insurance-leaders-see-their-greatest-exposures-emerging 

Insights150. (2025). How the Insurance Industry Is Adapting to Climate Change: Insights from Our Latest Microsurvey. https://insights150.com/p/how-the-insurance-industry-is-adapting-to-climate-change-insights-from-our-latest-microsurvey 

Insights150. (2025). How Insurance Leaders Are Adapting to Climate Change: Insights From Our Latest Microsurvey. https://insights150.com/p/how-insurance-leaders-are-adapting-to-climate-change-insights-from-our-latest-microsurvey 

Marsh McLennan. Building a climate resilient future. Five priorities for the global insurance industry. https://www.marshmclennan.com/assets/insights/publications/2023/december/2023-marsh-mcLennan-building-a-climate-resilient-future.pdf

The Geneva Association. (2021). Climate Change Risk Assessment for the Insurance Industry. A holistic decision-making framework and key considerations for both sides of the balance sheet. https://www.genevaassociation.org/sites/default/files/climate_risk_web_final_250221.pdf 

UN. (2022). Insuring the net-zero transition: Evolving thinking and practices. https://www.unepfi.org/wordpress/wp-content/uploads/2022/04/Insuring-the-net-zero-transition.pdf 

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