Climate change alters insurer risk management: S&P

Secondary perils have caused the reinsurance industry to regain capital in 5 of 6 years.

Evolving natural catastrophe risks driven by climate change are reshaping how insurers manage and assess their exposure, according to a new report by S&P Global Market Intelligence. 

The findings, part of the "Big Picture 2025 Outlook Report Series", highlight the growing impact of secondary perils—such as floods, fires, and severe storms—on the insurance industry’s financial stability.  

Secondary perils have accounted for significant losses in recent years, with the reinsurance industry failing to earn its cost of capital in five of six years between 2017 and 2022. 

These mid-sized events, combined with hurricanes affecting previously low-risk areas, have prompted insurers to increase their risk retention and pay more for reinsurance coverage.  

One example is Hurricane Helene, which caused severe damage in North Carolina’s Appalachian Mountains, a region typically less affected by hurricanes. Much of the economic loss from the storm remains uninsured, as US policies often exclude flooding.  

European insurers have also faced significant losses in 2024 due to major floods in central and eastern Europe. S&P Global Sustainable1 predicts that parts of northern Germany will face heightened flood risks by the 2050s.  

“With climate change expected to increase the severity and frequency of natural catastrophes, understanding this altered risk environment is paramount. Insurers have been beating the drum on a variety of climate change risks for many years so their current focus on extreme weather should be a cross-industry concern," said Raymond Barrett, lead author of the report at S&P Global Market Intelligence.