Insurance model transition challenges

🧨 When Risk Becomes Uninsurable, Capitalism Breaks We often think of economic transitions as controlled, strategic processes — planned in boardrooms, debated in policy circles, executed through gradual shifts in capital and regulation. But the reality playing out today looks very different. In my recent op-ed, I argued that we are not on track for a smooth transition to a sustainable economy. We are instead headed for a disorderly one — where capital continues flowing into high-risk, high-carbon sectors until reality forces an abrupt and destabilizing correction. 📄 https://lnkd.in/eYqu_dqF This week, Allianz — one of the world’s largest insurers — offered a striking example of how that dynamic is already unfolding. Günther Thallinger, a member of the board, issued a warning that can’t be dismissed as alarmist: climate risk is becoming uninsurable. Entire regions are being abandoned by insurers because the probability of loss is simply too high. The models no longer hold. The premiums no longer cover the risk. The foundation cracks. That shift isn’t just a challenge for homeowners or property developers. It signals a much broader unraveling. Because when insurance pulls out, mortgages follow. Without insurance, banks cannot lend. Without lending, property values collapse 📉. Investment dries up 💸. Entire local economies — built on the assumption of stable, insurable conditions — begin to falter. This is how a disorderly transition begins: not with a single market shock, but with a cascading withdrawal of financial functionality. And it starts in the sectors most exposed to physical climate impacts: housing, agriculture, infrastructure. 🌍 What happens when climate volatility makes large parts of these sectors financially unviable? What’s especially sobering is that insurance is supposed to be the frontline of risk management. If the frontline is walking away, we should be asking hard questions about what remains behind it. Because insurance doesn’t just price risk — it enables credit, underpins investment, and stabilizes entire markets. Without it, the financial system loses one of its key mechanisms for converting uncertainty into confidence. Allianz’s warning is a live signal from within the system that the costs of inaction are materializing — and they are not linear 📛. They come in tipping points and sudden repricings, in the evaporation of insurability and the collapse of assumptions that markets have long treated as fixed. The transition is no longer ahead of us. It’s happening — unevenly, unpredictably, and increasingly outside the bounds of conventional financial logic. 📖 You can read the full article here: https://lnkd.in/eYUDttpw #ClimateRisk #SustainableFinance #SystemicRisk #ESG #Sustainability

In our recently released Nature for Insurance and Insurance for Nature report (https://lnkd.in/evSdNK6s), we discuss the need for insurance industry models to better reflect – in a timely way – investments in risk reduction. This is also true for efforts like home hardening and other structural protection measures. California had already taken steps in that direction when, in 2024, the California Department of Insurance required industry catastrophe models to account for mitigation measures, including nature-based risk reduction (thank you Ricardo Lara and Michael Peterson). Now, after a six month process, DOI has completed review of three catastrophe models (Verisk, Karen Clark and Company, and Moody’s) for use in rate filings that write more wildfire-prone properties in the state (https://lnkd.in/ezRArqp7) – and that process had to include a review that the models can reflect risk reduction investments. But capable models need to be coupled with improvements in the data available for these models – such as the work of the WUI Data Commons led by Nancy Watkins (https://lnkd.in/eBT4SRha) with support and participation by the Insurance Institute for Business & Home Safety - IBHS, the Gordon and Betty Moore Foundation, and California Fire Chiefs Association. Add to that insurer leadership in supporting risk reduction efforts (such as Mercury Insurance: https://lnkd.in/eFtKhiXk), clear standards and guidelines (IBHS), and improved funding and financing models (such as being explored by Insurance for Good and California Forward) and we can create a positive feedback loop between risk reduction and insurance market outcomes. We can’t just do one of these: lowering our climate risk takes an integrated suite of approaches and many partners working together!

🚨 A big UN report just launched: A powerful global resource for insurers, reinsurers & brokers navigating the net-zero transition. “Underwriting the Transition” is the first-ever guide specifically tailored to help insurance and reinsurance companies develop and disclose credible transition plans for their underwriting portfolios. Why it matters: While insurers have made climate commitments, clear frameworks for underwriting strategies have been lacking. This guide provides that. What’s inside: - A structured framework for transition planning - A checklist to assess credibility - Real-world examples from insurers, reinsurers & brokers - Practical insights on disclosure, strategy, and implementation By moving from ambition to action, this report helps the insurance sector lead the way in building a resilient, inclusive, and net-zero economy reaffirming its role as society’s risk manager. 🌍 This is the second deliverable in United Nations Environment Programme Finance Initiative (UNEP FI)'s FIT Transition Plan Project — following “Closing the Gap” launched at COP29 and it lays the groundwork for the next report on total balance sheet guidance linking underwriting and investment strategies, to be launched at COP30. Let's make COP30 a defining moment for insurance climate leadership. #TransitionPlan #Insurance #Reinsurance #Sustainability #NetZero #FIT #UNEP #EIOPA #JustTransition #Underwriting