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Sustainability
Climate change: The emergence of ‘uninsurable’ areas – businesses must act now, or pay later
Global reinsurers Swiss Re and Munich Re warn that climate change is creating “uninsurable” areas worldwide. This financial reality demands immediate strategic action from business leaders.
The images have become distressingly familiar: coastal communities ravaged by relentless storms, once-fertile regions gripped by intractable droughts, and sprawling urban areas engulfed by wildfires. These are increasingly frequent realities reshaping our world – and our economies. While public discourse often debates the timing and severity of climate change impacts, a powerful, data-driven sector has moved beyond debate to concrete financial action. The global insurance industry, the ultimate arbiter of risk, is sending an unequivocal message: the financial consequences of climate change are already here, and are escalating rapidly.
At the forefront of this shift are leading global reinsurers such as Swiss Re and Munich Re. These titans of risk assessment, whose business models depend entirely on accurately pricing future uncertainties, are no longer just adjusting premiums for climate volatility. They are actively declaring that certain geographical areas, once considered viable for coverage, are becoming “uninsurable” due to the spiraling costs and frequency of climate-related risks – devastating floods, catastrophic wildfires, and destructive landslides. This isn’t merely an environmental warning; it’s a profound financial paradigm shift demanding immediate strategic action.
There is a growing number of properties, be they homes, apartments or commercial buildings, that are becoming uninsurable, unsaleable and ultimately unusable because of their location.
What does “uninsurable” mean
Risk-based pricing doesn’t always lead to full and immediate withdrawal of cover, but it may create economic inaccessibility of insurance. Premiums for a property or asset in an area prone to severe weather events may become successively more expensive on renewal until it reaches the point where it is prohibitively expensive to cover via normal insurance. Withdrawal of insurance or refusal to cover assets comes when potential losses from climate disasters exceed insurers’ risk tolerance.
The insurers’ verdict: Why they are the ultimate bellwether
Feedback and advice from the insurance industry carry unique weight. Unlike politicians or environmental activists, insurers operate on hard data and the laws of financial viability. Their existence depends on accurately assessing and pricing risk, ensuring premiums adequately cover potential future losses. When companies like Munich Re or Swiss Re issue warnings about “uninsurable” areas, it’s not a prediction; it’s an emerging financial reality.
Historically, insurers have demonstrated a remarkable ability to adapt to new risk landscapes, from widespread car ownership to cyber threats. However, climate change presents a challenge of an entirely different magnitude: it is systemic, pervasive, and capable of generating losses that defy traditional actuarial models. The scale is unprecedented, pushing boundaries of what is financially viable to cover.
The language employed by these industry leaders is unambiguous. Munich Re explicitly states: “There is a growing number of properties, be they homes, apartments or commercial buildings, that are becoming uninsurable, unsaleable and ultimately unusable because of their location.” They warn that “What until recently was considered a good investment can quickly become a total loss.” This isn’t theoretical; it’s a direct observation of market dynamics.
Swiss Re discusses the widening “protection gap” – the increasing difference between economic losses from natural catastrophes and the portion insured. This growing gap signals diminishing market capacity or willingness to pick up the costs for all climate-related damage and consequential loss of business.
“Miami Beach to Venice to Bangladesh face existential sea-level rise threats making long-term insurability questionable. ”
What it means for a business when insurers won’t give you cover
When a business location becomes uninsurable due to climate risks, it creates a series of severe, interlinked financial consequences. Companies unable to secure insurance for a location, e.g., in fire-prone areas, may not be able to raise a mortgage on the property or secure financing for capital investment. In extreme situations where an existing location is suddenly refused insurance coverage, an acceleration clause will kick in, and financing may become immediately repayable as the value of the unprotected asset effectively reduces dramatically. Companies seeking solutions may be left with costly and unattractive alternatives that make their business inherently uncompetitive and, in some cases, unviable:
- Self-insure through cash reserves, tying up working capital
- Accept the existential risk that a single event could destroy the business
- Relocate to insurable areas, often at significant cost and customer loss
Hard data: Evidence from leading reinsurers
Leading reinsurers consistently report escalating losses from climate-linked disasters. Swiss Re’s May 2024 blog Risk insights to tackle the toughest decisions asks whether “there are places that may eventually become uninsurable,” noting “some insurers have already exited select regions due to exposure to catastrophes.”
Munich Re states: “There is a growing number of properties that are becoming uninsurable, unsaleable, and ultimately unusable because of their location.”
Major climate-related market failures:
- California wildfires: Camp Fire (2018) caused $16.5bn in losses. State Farm and Allstate withdrew from high-risk areas. Non-renewals increased 203% (2018-2022) in particularly fire-prone areas, forcing homeowners to the FAIR Plan, California’s state-backed insurer of last resort offering coverage for high premiums.
- Florida hurricanes: More than a dozen insurers withdrew since 2020. Hurricane Ian caused tens of billions in losses. Citizens Property Insurance, Florida’s equivalent of the FAIR Plan, now covers 1.3 million policies. Premiums rise 30-50% annually.
- Australia’s “Black Summer” bushfires and flooding: Rural and coastal communities face 100%+ premium increases.
- European floods (2021): €40bn ($46.1bn) damages across Germany, Belgium, and the Netherlands. Some private insurance coverage now requires state backing.
- Global coastal areas: Miami Beach to Venice to Bangladesh face existential sea-level rise threats making long-term insurability questionable.
Strategic Implications for Business Leaders
“Believe it now or believe it later” – climate change operates on this unforgiving timeline. What was once seen as environmental responsibility has become a core financial and strategic challenge that every business leader must heed and act on the insurers’ clear signal, which has implications extending far beyond procuring property insurance.
Immediate action framework: Asset risk assessment. Business leaders must immediately audit their asset portfolios using a structured climate risk framework. Start by categorizing all physical assets into three risk tiers: high (coastal, wildfire-prone, flood zones), medium (areas with increasing extreme weather frequency), and low (historically stable regions with good infrastructure resilience). For high-risk assets, obtain current insurance quotes and availability assessments – if coverage is unavailable or prohibitively expensive, factor immediate devaluation into financial planning.
Create a “climate risk register” that tracks insurance costs, availability trends, and regulatory changes for each location. Assign specific team members to monitor these metrics quarterly. For any asset where insurance costs exceed 5% of property value annually, or where coverage is declined by multiple carriers, implement immediate risk mitigation measures or consider divestment.
Capital allocation decision trees. Integrate climate insurability into all capital allocation decisions using a three-step framework. First, any investment greater than $1m in physical assets (this will vary by the size of the company) requires a 20-year climate risk assessment including insurance availability projections. Second, apply a “climate stress test” to model asset values under scenarios where insurance becomes unavailable or costs triple. Third, require explicit board approval for any significant investments in high-risk climate zones, with documented justification for how the investment remains viable under adverse scenarios, including the costs of any mitigation.
Supply chain resilience mapping. Map your entire supply chain for climate vulnerabilities. Identify all critical suppliers located in areas experiencing insurance market withdrawal. For each critical supplier in a high-risk zone, develop at least two alternative suppliers in different geographic regions. Negotiate supply contracts that include climate-related force majeure clauses and require suppliers to maintain adequate climate resilience measures.
Create supplier scorecards that include climate preparedness metrics alongside traditional quality and cost measures. Gradually shift procurement toward suppliers demonstrating robust climate adaptation strategies, even if this involves modest cost premiums in the short term.
Financial risk management. Establish specific financial reserves for climate-related risks. Calculate potential exposure from uninsurable assets and maintain liquid reserves equal to at least 20% of this exposure. For companies with significant climate-exposed assets, consider catastrophe bonds ‘cat bonds’, or alternative risk transfer mechanisms to hedge against insurance market withdrawals.
Implement enhanced due diligence procedures for all mergers and acquisitions that explicitly evaluate climate risk exposure. Require sellers to provide insurance history and availability assessments for all properties. Factor potential climate-related asset devaluations into purchase price negotiations.
Re-evaluate development and capital allocation. Traditional site selection criteria must now explicitly incorporate physical climate risk and insurance availability. Before committing to any new location, obtain preliminary insurance quotes and verify that multiple carriers are willing to provide long-term coverage. Build climate resilience features into all new construction projects – flood-resistant design, fire-resistant materials, backup power systems – even if not required by current regulations, you are investing in your business continuity.
For existing operations in high-risk areas, develop detailed adaptation plans. This might include elevating critical equipment above flood levels, installing advanced fire suppression systems, or creating redundant operations in different geographic regions. Budget annually for climate adaptation measures rather than treating them as one-off capital expenditures.
Potential financial upsides to investing in adaptation. J.P. Morgan is also urging a holistic approach to climate risks while highlighting the upside of businesses making investments in climate adaptation as a way of unlocking resilience. According to their May 2025 report Building Resilience through Climate Adaptation, they note: “By integrating adaptation into strategic evaluations, businesses and policymakers can unlock value, protect against risks, and capitalize on new growth opportunities that support long-term success in a changing world.”
The most successful companies will be those that view climate adaptation as a source of competitive advantage rather than merely a cost center.
The path forward: Strategic integration
The insurance industry’s message provides a clear roadmap: climate risk is no longer a future concern, but a present financial reality requiring an immediate strategic response. Companies that integrate these realities into their planning now will gain a competitive advantage over those that wait for the crisis to deepen.
Success – and good governance – requires embedding climate considerations into everyday business operations rather than treating them as separate ‘sustainability’ initiatives. This means updating standard operating procedures, revising investment committees’ decision-making criteria, and ensuring board-level oversight of climate risk exposure. Finance teams must incorporate climate scenarios into regular forecasting, while operations teams need contingency plans for climate-disrupted production and supply chains.
The most successful companies will be those that view climate adaptation as a source of competitive advantage rather than merely a cost center. This includes developing expertise in climate-resilient technologies, building stronger relationships with suppliers who prioritize resilience, and positioning products and services for a climate-constrained economy.
Regular monitoring and adjustment of climate strategies will be essential as both physical risks and insurance market conditions continue to evolve rapidly. Companies should establish quarterly reviews of their climate risk exposure and annual assessments of their adaptation strategies’ effectiveness. The era of “uninsurable” areas demands not just awareness, but concrete action translated into measurable business decisions that protect and enhance long-term risk management and value creation.
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