Joy Agwunobi
The World Economic Forum (WEF) has warned that companies can no longer rely on traditional insurance models to protect corporate assets from escalating climate-related shocks, urging boards to rethink how they assess and govern climate risk as global weather extremes become more systemic.
According to a new WEF analysis titled “Rethinking climate risk and insurance can help boards boost company value and resilience,” decades-long assumptions about the effectiveness of insurance as a risk-transfer tool have become a growing blind spot for corporate leaders, especially as climate disasters increasingly interact and trigger wider economic disruptions.
Climate impacts now outpacing insurance capacity
Citing new data from the Network for Greening the Financial System (NGFS), the report highlights the scale of looming economic losses: climate damage could erode up to 15 percent of global GDP by 2050 under 2°C warming and 30 percent by 2100 under 3°C warming. These updated 2024 estimates are three times higher than earlier projections.
Insurance has traditionally helped stabilise economies after natural disasters. But climate risks are no longer isolated shocks, WEF notes. Instead, droughts, floods, wildfires and biodiversity loss now interact simultaneously, compounding physical damage and straining the insurance market.
The global “insurance burden,” the portion of disaster losses carried by insurers has more than doubled in 30 years. Yet the gap between total economic losses and insured losses continues to widen. The United Nations projects that uninsured climate-driven losses could double to $560 billion by 2030, even if coverage levels remain unchanged.
Despite this trend, many boards, the report warns, continue to operate under outdated assumptions that insurers or governments will always provide cover.
Climate risks without borders
WEF’s Global Risks Report 2025 underscores how interconnected climate threats have become. A single extreme weather event can now trigger cascading consequences from supply shortages and price inflation to workforce disruptions and political instability.
The report cites the 2025 European heatwaves as an example: of the 24,000 heat-related deaths recorded that summer, 16,500 were directly linked to greenhouse gas-driven warming. Rising health impacts are expected to translate into higher insurance premiums, increased claims and reduced labour productivity.
Climate volatility also disrupts mobility. In 2023, extreme heat grounded flights across Southern Europe and the United States. While insurance may reimburse airfare, it cannot compensate for lost productivity or delays that ripple through global supply chains.
Natural resources are under equal stress. Allianz board member Günther Thallinger warns that entire asset classes are “degrading in real time” due to extreme weather. The UN Food and Agriculture Organisation notes that more than one-third of global fish stocks are overfished, while cocoa yields in West Africa and coffee harvests in Brazil are already declining due to heat, drought and shifting climate patterns.
These disruptions have cross-border consequences. In Taiwan, for instance, increasing flood and heat stress threaten semiconductor production, a critical industry feeding global technological supply chains.
Five climate blind spots boards must address
WEF argues that boards must overhaul their approach to insurance governance, warning that companies that fail to adapt risk losing not only insurance protection but also access to capital and talent.
The report highlights five major blind spots weakening corporate preparedness for today’s fast-evolving risk landscape. It notes first an illusion of predictability, where traditional insurance models still depend heavily on historical data that no longer reflect the intertwined realities of climate volatility and socio-economic pressures. This gap, it warns, leaves many boards exposed to tail-risk events they scarcely understand.
Closely tied to this is a false sense of security, as many directors continue to assume that insurers or governments will reliably offer protection, even though providers are steadily withdrawing from high-risk regions. The analysis also points to persistent risk oversight gaps, explaining that the cascading implications of uninsurability from higher financing and capital costs to threats to business continuity are often missing from corporate risk registers.
Another blind spot lies in hidden policy exclusions. Critical threats such as pollution liabilities, non-damage business interruption and supply chain failures are omitted in many insurance contracts, leaving organisations vulnerable to losses they assume are covered.
Finally, the report underscores the widening mismatch between escalating costs and declining coverage, noting that rebuild and compliance expenses in several regions now far exceed what insurance payouts cover. It cites Pakistan’s 2022 floods as an example: although the disaster caused $14.9 billion in damage, reconstruction with climate-resilient upgrades required $16.3 billion, highlighting the steep price of climate-adjusted recovery.
Insurance becomes a governance tool, not a backstop
The Forum stresses that insurance should no longer be viewed merely as a financial safety net but as a strategic governance lever capable of driving climate resilience and long-term value creation.
Boards, it says, must strengthen their literacy in climate, nature and insurance risks, moving beyond compliance-driven climate scenarios toward adaptive, forward-looking risk management.
Directors are urged to interrogate which corporate assets may become uninsurable, whether rising premiums could undermine asset viability, and how cascading risks, not just single events, could reshape company strategy. Understanding policy exclusions and mapping supply chain interdependencies are also essential.
Additionally, WEF warns that companies treating insurance as an afterthought may find it has become a blind spot at the very moment climate volatility accelerates. By contrast, boards that leverage insurance as a strategic governance mechanism stand to secure resilience, safeguard capital and unlock long-term value.
