Climate Change has been a leading discussion over the past few months, and rightly so. However, there is all-too-real fear that caring for our planet is not a top priority in many industries. Should this continue, what will this mean for the insurance industry and what are insurers doing about it?

Climate Change

Property damage: an inevitable effect of extreme bad weather.

If storms like Storm Christoph in early 2021 become a regular occurrence, property owners could be at risk from reoccurring flood damage. The Met Office reports that since 1998, the UK has seen 6 of the 10 wettest years since records began. In fact, by 2070 they predict that winters will be 30% wetter than they are now. More floods mean more property damage.


That’s what insurance is for, right?

Insurers safeguard policyholders against shouldering the burden of an unexpected peril, which in the case of flooding can devastate homes and drastically disrupt local business as well as the larger economy.

In order for insurers to provide this service, obviously the risks must be unforeseen and not frequent (pooling of risk). This keeps insurance premiums at an affordable rate, in most cases.


An increased frequency of property damage claims caused by climate change will cause a rise in premiums.

This is the only way insurers will be able to manage episodes such as paying out £194million for burst pipe claims in early 2018 due to an extreme freeze, £64million on subsidence claims in 2018 due to an extreme heatwave, and of course £120million caused by the aforementioned Storm Christoph.


What are insurers doing to limit Climate Change?

Many insurers have been working with ‘Flood Re’ to make home insurance more affordable for people who live in areas that are highly likely to experience flooding. Restoring a flooded home can cost upwards of £45,000, so shopping for insurance that covers this extent of damage can be difficult and expensive. ‘Flood Re’ has been set up by the Insurance Sector alongside Government support.

Limiting climate change is something the industry is finding particularly challenging. Insurers invest into assets, which hold an estimated £1.8trillion. Right now, only 1.2% of these assets are involved in projects such the use of renewable energy.

Billions of pounds worth of funding could be accessed if insurers find an easier way to invest into greener assets. Industry leaders are developing initiatives such as the ClimateWise Transition Risk Framework, which is creating regulatory changes to lead insurers to invest into greener assets. Without this, insurers simply don’t have enough high-quality, consistent data to identify the best green assets to invest in.


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