The insurance industry is facing significant challenges as secondary perils such as floods, fires, and severe storms dominate global insured losses. According to a recent report by S&P Global Market Intelligence, these climate risks are intensifying financial pressures across the insurance sector, including reinsurers and consumers.
In 2024, global insured losses from natural catastrophes are set to surpass the $100 billion mark, a trend that has persisted in recent years. This surge is largely due to secondary perils, which have begun to outpace traditional peak perils like tropical cyclones and earthquakes. Insurers are now being forced to adapt their risk models and reassess their relationships with reinsurers and policyholders.
Geographic Shifts Add to Industry Uncertainty
The increasing unpredictability of severe weather events is creating new challenges for insurers. An example is Hurricane Helene, which devastated the Appalachian mountains in North Carolina—an area previously considered relatively safe from such extreme weather. The hurricane resulted in over 100 deaths and more than $40 billion in economic damage, underscoring the need for recalibrated risk assessments and coverage strategies.
Raymond Barrett, lead author of the S&P report, emphasized: “The insurance industry has often acted as an early warning system for individuals and industries looking to understand and mitigate future risk. With climate change expected to increase the severity and frequency of natural catastrophes, understanding this altered risk environment is paramount.”
Financial Pressures on Insurers and Reinsurers
The report detailed how the rising costs of natural catastrophes are affecting the financial health of the reinsurance sector. Between 2017 and 2022, global reinsurers failed to earn their cost of capital in five out of six years, largely due to losses from secondary perils. In response, reinsurers have increased property-catastrophe coverage prices and raised payout thresholds—known as attachment points—to mitigate these losses. These changes have shifted a greater share of the risk onto primary insurers.
The knock-on effect has been a significant rise in insurance premiums for consumers, particularly in the U.S. homeowners insurance market, where rates continue to climb as insurers adjust to the new climate risk reality.
The Protection Gap and Political Uncertainty
The report highlighted the existence of “protection gaps”—specifically, the lack of adequate insurance coverage for flood damage. Following Hurricane Helene, only 7.5% of homes with verified flood damage had coverage, leaving many homeowners vulnerable to financial losses. Government-backed insurance programs, like the National Flood Insurance Program (NFIP), have been critical in providing coverage, but political uncertainty looms over their future.
The incoming administration has indicated a potential reduction in the role of federal insurance programs. The Heritage Foundation’s Project 2025 initiative has proposed winding down the NFIP and replacing it with private insurance—a move that could significantly impact the flood insurance landscape in the United States.
Emerging Risks for Expanding Industries
The report also explored how expanding industries must adapt to the evolving climate risk landscape. For instance, Texas’ growing datacenter sector faces significant water stress risks due to projected drought conditions by 2070, posing a challenge for cooling systems essential to datacenter operations.
The Insurance Industry as an Early Warning System
Historically, the insurance industry has played a vital role in identifying emerging risks before they become widespread threats. From asbestos-related liabilities to cybersecurity breaches, insurers have been on the front lines of risk management. In recent years, insurers have increasingly highlighted the rising severity of climate-related events like desertification, forest fires, and storm surges—urging businesses across industries to prepare for a more uncertain future.
The report from S&P Global sends a clear message: the challenges posed by secondary climate perils are here to stay, and the insurance industry must continue to adapt and recalibrate its strategies to manage this evolving threat