Joy Agwunobi
Climate change is increasingly testing the limits of the global insurance industry, with insurers facing rising costs, market withdrawals, and mounting pressure on financial stability, according to Ortec Finance.
In a recent analysis titled “How climate change could spark an insurability crisis—and destabilise the global financial system,” the global financial technology and risk analytics firm highlighted that the intensifying frequency of extreme weather events is creating both affordability and availability crises for insurance worldwide. The report warns that these pressures extend beyond household coverage, affecting mortgage markets, sovereign debt, and the broader financial system.
“Intensifying extreme weather caused by global warming is increasing insurance costs and prompting insurer withdrawals, putting mortgage markets, public finances, and financial stability at risk,” Ortec Finance said. The firm referenced data from Swiss Re, noting that inflation-adjusted insured losses from natural catastrophes—mostly climate-related—have been rising by 5–7 percent annually.
Industry leaders echo these concerns. Allianz board member Günther Thallinger has cautioned that if global warming reaches 3 degrees Celsius, traditional insurance mechanisms may no longer function effectively, potentially rendering large regions uninsurable—a scenario that could undermine the foundations of the global financial system, which relies heavily on insurance as a risk-transfer and stability mechanism.
Current projections suggest the world is heading towards around 2.6 degrees Celsius of warming by 2100, according to the Climate Action Tracker. Ortec Finance notes that even a 2-degree increase, potentially reached within decades, would make insurance increasingly unaffordable, leaving many households and businesses at risk of being unable to obtain coverage.
Implications for mortgages and property markets
The erosion of insurability carries significant consequences for mortgage markets. In countries where access to home loans depends on adequate insurance coverage, unavailability of insurance in high-risk areas could restrict mortgage access, depress property values, and heighten financial stress for both households and lenders.
Global insurance affordability trends
Ortec Finance’s report highlights that the pressure on insurance markets is already evident in multiple regions. In the United States, the proportion of uninsured homes more than doubled from 5 percent in 2019 to 12 percent in 2024, while insurance premiums surged by 38 percent, nearly twice the pace of inflation. The US Federal Reserve has warned that within the next 10 to 15 years, some regions may become effectively uninsurable, destabilising local housing markets.
In Europe, the protection gap remains substantial, with only 20 to 25 percent of catastrophe losses insured. While risks in countries like the Netherlands are currently manageable, significant gaps persist. Certain flood risks and structural issues such as pile rot, which affects around 800,000 homes with repair costs averaging €64,000 per property, remain largely uncovered by insurance. The Netherlands is investing in flood defences to mitigate a projected 60-centimetre sea-level rise by 2100, although extreme scenarios could see rises up to two metres, according to the national climate institute KNMI.
Australia faces similar challenges, with 15 percent of households classified as “affordability-stressed” in 2024, up from 10 percent in 2022. These households spend more than four weeks of gross income on insurance, highlighting the growing social and financial strain imposed by climate-related risks.
Financial stability and asset valuation risks
Ortec Finance also raised concerns that current asset valuations may not fully reflect the long-term economic consequences of climate change, including sea-level rise, productivity losses, and physical damage from extreme weather. The firm warns that an insurability crisis could trigger abrupt repricing of assets, particularly in real estate markets, with potential ripple effects across financial systems if insurers withdraw from additional regions following severe climate events.
Sovereign risk is another key area of concern. Governments often act as insurers of last resort, but as protection gaps widen, public finances come under increasing pressure, threatening fiscal sustainability and elevating sovereign debt risks, especially in climate-vulnerable nations.
Pathways to preventing an insurability crisis
According to Ortec Finance, mitigating a full-blown insurability crisis will require rapid decarbonisation, large-scale adaptation measures, and reforms to financial systems. The firm stresses the importance of credible carbon removal mechanisms, investments in resilient infrastructure such as flood barriers, and incorporation of adaptation measures into insurance pricing models.
Additionally, comprehensive climate scenario analyses are needed to assess impacts across asset classes, economies, and sectors. These analyses should account for multiple climate pathways and realistic market responses to physical risks, offering investors and policymakers clearer guidance on emerging vulnerabilities.
Without decisive action, Ortec Finance warns that the emerging insurability crisis could undermine not only individual households and businesses but also the stability of the global financial system itself.
