Escalating Impact: The Global Insurance Gap Grows as Climate Change Increases

As extreme weather events and catastrophic risks increase, become more frequent, and destructive, an uncomfortable thought presents itself. Does insurance still offer the safety net it claims?

“Insurers are the climate change canary in the coal mine,” said Dave Jones, the former insurance commissioner in California and director of the Climate Risk Initiative at the University of California, Berkeley’s Center for Law, Energy and the Environment. “While these policy and regulatory interventions might help in the short run, they’re likely to be overwhelmed by the increasing risk and loss.”

Climate change is testing whether insurance still provides the safety it once did. The insurance protection gap – the difference between total loss from disasters and the amount that is actually insured – is rapidly increasing.

Why This Matters

• Global Issue: Marsh McLennan, the global insurer, states that 18% of the global population is threatened by flooding, which will double to 36% when global warming exceeds 2 degrees Celsius, forecast now to happen in the next generation.

• Risk for Real Estate Markets: As insurance prices increase and uninsurable homes lose value, real estate markets are forecast to decline high-risk areas. Mortgages in high-risk areas are also forecast to become increasingly expensive and unavailable.

• Homeowners Lose Safety Net: As insurers increasingly stop offering insurance for extreme weather events in high-risk areas, homeowners face the risk of losing their entire home from a single disaster. Increased pricing for high-risk areas will also bring a burden on homeowners, which may cause people to lease more or move to areas with less risk.

• Governments Insurer of Last Resort: As private insurers cease insuring, regional governments are becoming insurers of last resort.

Marsh McLennan states there are three things that we can do to prepare for these extreme weather events: learn to live with floods, prepare for relocation, and build strategic protection (above).

EIOPA describes wildfires as lower risk and well-covered, with coastal floods and floods as medium risk with only have moderate insurance penetration, which indicates a significant insurance protection gap (below).

Globally, in 2024, extreme weather losses, magnified by climate change, reported by Munich RE, increased 19% compared to 2023, up to $320 billion from $268 billion. Both exceed average extreme weather losses over past 10 years, which is $236 billion.

North America

The March 2025 U.S. tornado outbreak, which claimed more than 40 lives from more than 100 tornadoes including 13 severe EF3 and EF4 storms, resulted in between $1 billion to 3 billion in insured losses. 

In 2024, North American insured loses exceeded $190 billion, led by Hurricane Helene, Hurricane Milton, and Hurricane Beryl.

Europe

In France, some cities are now uninsurable while European insurers forecast cost increases of 60% by 2050. 

In Spain, Germany, Poland, Italy, Austria, Romania, Slovakia, and the Czech Republic, the three largest natural disasters in Europe cost $20 billion in losses in 2024, with insured losses totaling $8.5 billion. In total.

In 2024, Europe had $31 billion in overall losses and $14 billion in insured losses while when assessed more broadly, extreme weather events have cost Europe over €50 billion annually from 2020 to 2023.

Australia and New Zealand

Australia and New Zealand also face a home insurance crisis. Premiums have surged by 66% since 2020, causing residents in flood-prone areas to pay out more than they can afford.

IAG, New Zealand’s largest insurer, has said that it will stop issuing new insurance policies on “flood-prone and landslip-threatened homes after damage from serious flooding and a cyclone. IAG says that 1% of homes across the country, equivalent to around 20,000 homes, are at risk of severe flooding.”

Community Displacement and Refugee Crises

In 2023, 20 million people were displaced because of extreme weather (GRID), similar to the population of Chile or Florida. Climate change is a leading driver of displacement similar or worse than war and conflict.

UNICEF states that 20,000 children are displaced daily due to extreme weather.

UNICEF displacement risk mitigation strategies are:

• Protect children and young people from the impacts of climate change and displacement by ensuring child-critical services are shock-responsive, portable and inclusive, including for children already uprooted.

• Prepare children and young people to live in a climate changed world by improving their adaptive capacities, resilience and enabling their participation.

• Prioritize children and young people – including those already uprooted from their homes – in climate, humanitarian and development policy, action and investments.

Gameplan

A 10-point plan for the insurance industry exists. It reimagines the future and offers a roadmap on how we can adapt and be resilient to these natural disasters. It bridges the gap between regulators, insurers, and other stakeholders.

Call to Action

The escalating global insurance gap is growing as climate change increases extreme weather events.

The insurance gap is endangering tens of millions of people, their communities, and their assets.