Impact of climate change on the insurance market

Adjusting models and finding insurance solutions are necessary to contain the increase in claims and to maintain the loss ratio of the natural disaster classes of business at an acceptable level. Several scenarios are being examined.

Adapting rates to risk

In order to ensure the technical balance of the class of business by 2050, in the face of the increasing number of natural catastrophes, insurers have no choice but to raise premiums.

According to estimates by the French insurance supervisory authority (ACPR), the increase in rates would be 130 to 200% over 30 years, which represents an annual increase in premium rates of between 2.8% and 3.7%.

Reduction in benefits

Maintaining the same rates and degrees of insurability would force insurers to reduce the level of benefits offered. They will be obliged to reduce the level of coverage and grant minimum benefits to safeguard the viability of the system.

Denial of coverage

Some insurance companies are already beginning to deny coverage for certain risks, sensing that damage from drought, fire and rising water levels will increase.

In Germany, insurers may no longer underwrite natural disaster risks if nothing is done by the authorities or by professional bodies.

Withdrawal from some regions

Insurance companies are withdrawing from certain areas that have become uninsurable due to the accumulation of natural disaster risks there. This is the case in California where insurers prefer not to renew property damage contracts that include fire.

Transfer of risks to reinsurers

Insurers are also considering the possibility of increasing the share of risks ceded to reinsurers. This solution highlights the essential role played by private reinsurers in absorbing major climatic shocks.

Public-private partnership

The insurance market alone will not be able to withstand the cost of natural catastrophes. The establishment of a national solidarity scheme, based on a partnership between insurers and public authorities, seems to be the most reasonable solution.