The insurance industry is bracing for another costly year as climate risk continues to intensify. According to Swiss Re Institute, insured losses from natural catastrophes are projected to reach 145 billion dollars in 2025. This reflects a nearly 6% increase from the previous year and aligns with the long-term trend of 5% to 7% annual growth. While the number is high, it is not unexpected. More concerning is how quickly the baseline is rising and what this indicates for insurability, risk mitigation, and the evolving responsibilities of the insurance sector.
A Blazing Start to 2025, Yet Still on Trend
This year began with wildfires sweeping across Los Angeles County, resulting in an estimated 40 billion dollars in insured losses — the highest insured loss from wildfires ever recorded. Despite the scale of the event, Swiss Re emphasizes that it does not significantly alter the overall annual loss trend. This reflects just how high the global loss benchmark has become.
A combination of factors contributed to this event. Expanding residential development into wildfire-prone areas, climate-related changes to wildfire behavior, and inflation in construction costs have all made fire events more destructive and expensive.
Secondary Perils Continue to Drive Annual Totals
While primary perils such as hurricanes and earthquakes have the most severe loss potential, secondary perils like severe convective storms, floods, and wildfires are now the largest contributors to yearly insured losses. These events are more frequent and have consistently driven totals upward.
In 2024, global insured losses from natural disasters totaled 137 billion dollars. Key drivers included hurricanes Helene and Milton, widespread urban flooding, and Canada’s most severe insured loss year on record. Global economic losses were 318 billion dollars, with only 43% of those losses covered by insurance. The persistence of a wide protection gap — even in advanced economies — remains a major concern.
Understanding Peak Loss Years
Swiss Re models indicate a one-in-ten probability that insured losses in 2025 could reach 300 billion dollars, more than double the annual trend. These types of years, referred to as peak loss years, have occurred five times in the last 30 years. For example, in 2017, hurricanes Harvey, Irma, and Maria pushed insured losses to 111% above trend.
The industry is currently well-capitalized to handle a year of this magnitude. Primary insurance capital stood at approximately 1.8 trillion dollars in 2024, while traditional reinsurance capital was about 500 billion dollars. Maintaining this strength will require sustained growth in both traditional and alternative reinsurance capital to absorb future peak-year volatility.
Claims Costs Are Rising
The Los Angeles wildfires have also highlighted a growing trend: rising claims costs. In the United States, homeowners insurers have seen net incurred losses increase by 8% annually since 2018. This trend is driven by inflation in building materials and labor, which has resulted in several years of underwriting losses for many carriers.
In California, the highest homeowner premiums tend to be in areas with significant wildfire exposure. Nationwide, there is a clear correlation between average catastrophe losses per policy and state-level insurance premiums. As exposure continues to grow in high-risk areas, maintaining affordable and adequate coverage becomes more difficult.
Adaptation and Prevention Are Key
To address rising losses, the industry must emphasize prevention and adaptation. Stronger building codes, improved drainage and flood infrastructure, and land-use planning can help reduce exposure to natural perils. In some cases, adaptation measures have already contributed to lower premiums.
However, reducing loss potential is not something insurers can tackle alone. A multi-stakeholder effort is needed, involving governments, regulators, property owners, and the insurance industry. Without this collaboration, the pace of losses will continue to outstrip mitigation efforts.
Guidance for Insurance Professionals
Insurers and agents can play a vital role in managing climate-related risks:
- Reassess underwriting criteria and pricing models to account for environmental and economic changes
- Help clients understand their exposure and the value of adequate coverage
- Advocate for and invest in mitigation strategies that can reduce future claims
- Partner with reinsurers and explore diversified risk transfer solutions
Final Thoughts
The forecast of 145 billion dollars in insured catastrophe losses for 2025 reflects a continuing trend rather than an exception. As economic development, population growth, and climate change increase exposure, the insurance industry must take a more proactive role in risk reduction.
The insurance sector can help shape a more resilient future for businesses, communities, and individuals by closing protection gaps, supporting adaptation efforts, and evolving with the risk landscape.
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