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13th Jan, 2020

George Sofokleous
George Sofokleous
Job Title
Senior Regional Director

The effects of climate change are undeniable, and the insurance industry plays a pivotal role in minimising the crisis, contributing to a sustainable future.

It’s hard to deny the effect that climate change is having on our planet. Human actions have increased carbon dioxide emissions; causing the global temperature to rise. Continuing these activities will lead to damaging, potentially disastrous, effects on the planet.

The effects of global warming are everywhere, as we see the devastating bush fires in Australia, severe flooding in the UK, and extreme weather risks across the globe. A study from NASA and the European Space Agency (ESA) found that 3.8 trillion tons of ice in the Greenland Ice Sheet has melted since 1992.

The physical effects of climate change on humans and our environment are devastating, but there are many knock-on effects on our economy, and the insurance market is a key player in the fight against climate change.

According to The Association of British Insurers, UK insurers alone hold over £1.8 trillion in invested assets, which equates to around 25% of the UK’s total net worth.

Insurance is built on the management of risk, yet the effect of climate change is one of the biggest risks imaginable. The extreme freeze that hit the UK early in 2018 resulted in insurers paying a record amount for burst pipes - £194 million in a three month period.

How is the climate crisis affecting insurance companies?

Claims and premiums surge

The increased severity and frequency of severe weather patterns results in more claims made globally on insurance companies. The impact of flooding and storms means people are more reliant on their insurance companies to cover the cost of damage to their property.

Not only can this affect insurance companies in terms of cost of rebuilding, but this then has a knock-on effect on everyone’s policies. As the risk of damage increases, we are likely to see policy prices adapt accordingly. Additionally, because of the increasing number of claims made globally, policy premiums are likely to rise for both individuals and businesses.


Environmental issues, social responsibility and ethical considerations are more important than ever. Most organisations have adopted some form of corporate social responsibility (CSR) practices with the aim of contributing to a more sustainable environment.

However, the pressure on businesses to contribute more is dramatically increasing. Although historically this might not have included insurance companies, the climate crisis has made people more aware of unsustainable practices. People are beginning to hold corporations to account, which could also influence the insurance providers they choose to invest with.

Setting the trend

Insurance companies have a large part to play in supporting the global transition to a low-carbon future.

In order to fight the climate crisis and reach the 2015 Paris Climate Agreement’s target of keeping global temperature increases to well below 2°C, drastic and immediate action is required, and projects that damage the environment need to be scrapped.

In order to reach this target, no new coal projects can be built. However, globally there are thousands of projects in the works that involve the burning of fossil fuels.

If insurance companies committed to withholding cover in these types of ventures, it is highly likely that these projects wouldn’t proceed. The indirect influence the insurance market has on the environment is astonishing.

Allianz is an example of an insurance company that has reviewed its practices. It has pledged to withdraw from insuring single coal-fired power plants and coal mines, with an aim of phasing out all coal insurance by 2040.

There is a long way to go to reach the carbon levels required to stop the climate crisis becoming an irreversible disaster. Insurance companies are in a unique position: they can actively stop unsustainable practices from going ahead by refusing to insure them. It will be interesting to see if other insurers follow the lead that companies like Allianz have set, and begin to implement more CSR-aligned policies and procedures.