Escalating physical climate risks threaten to make critical infrastructure assets in vulnerable regions effectively unprotectable and uninvestable, global insurance firms have warned.
A report from the MSCI Institute and specialist consultancy D A Carlin found that 96% of surveyed insurance professionals are “very to extremely concerned” that extreme weather will soon render infrastructure in high-risk zones — such as coastal areas and floodplains — uninsurable.
‘Insurance deserts’ have developed in jurisdictions where homeowners and businesses in wildfire-prone or coastal regions face steeply rising premiums or a total withdrawal of coverage. In California, major providers have halted new policies or issued mass non-renewals in wildfire-prone zones, pushing the number of policies in the US state’s ‘insurer of last resort’ regime to more than 450,000.
In Florida and flood-prone regions of Australia, house insurance premiums have surged by as much as 300%, with coverage for climate hazards withdrawn in some areas. As capital-intensive and geographically fixed assets, infrastructure can also be exposed to the increasing frequency of floods and storms.
Insurance coverage remains below 1% in countries like Bangladesh, India, Vietnam, the Philippines, Indonesia, Egypt and Nigeria, according to the UN’s latest Global Assessment Report on Disaster Risk Reduction.
Rising uninsurability impacts financial stability, with investors and lenders exposed to a potential devaluation of assets, a decline in collateral quality for lenders, and a systemic “climate-credit” squeeze that could destabilise mortgage markets and increase fiscal strain on governments.
The findings are based on a survey of 50 major insurers and reinsurers across Europe (48%), North America (28%), and the Asia-Pacific region (24%). The report also notes a transition in how firms assess risk, moving away from a reliance on historical data toward “layered intelligence” and high-resolution geospatial modeling to better predict future hazards.
Authorities in jurisdictions including the UK, EU, and Canada are increasingly mandating that insurers integrate physical climate scenarios into their governance and capital planning, reflecting a growing consensus that physical risk is now a core pillar of financial stability.
A recent survey of UK-based insurance firms found most were struggling to meet a June deadline for new climate risk requirements, issued last December by the Prudential Regulatory Authority.
Butch Bacani, Head of Insurance at the UN Environment Programme, said the report showed how insurers are adapting to escalating physical risks, highlighting that “the past is no longer a reliable indicator of the future”.
