Insurance and reinsurance under climate stress

The report examines how the insurance and reinsurance sectors are responding to intensifying climate disruptions in global supply chains. It identifies critical structural, market, and modelling limits that undermine the industry's ability to absorb systemic risk, noting a trend toward 'un-insurability' in high-risk regions. The author argues that without a shift from simple risk transfer to a stewardship model integrated with long-term adaptation and public-private coordination, the sector may amplify rather than stabilize economic volatility.

• Traditional insurance and reinsurance mechanisms are struggling to manage climate risks because climate change creates systemic, compounding, and cross-sectoral shocks that violate the core insurance principle of risk diversification, where losses are expected to be independent.
• There is an emerging trend of 'un-insurability' where private insurers withdraw from high-risk geographies, such as wildfire-prone areas of California and flood-prone regions of Europe, leading to wider protection gaps and higher capital costs for businesses.
• Current risk modelling is fundamentally limited by a heavy reliance on historical data, which fails to account for unprecedented climate extremes and the 'tails' of probability distributions, leading to the systematic underpricing of systemic risk.
• Insurance coverage is too narrowly focused on direct physical asset damage, leaving a significant 'blind spot' regarding the human dimension of supply chains, specifically climate-related health, productivity, and mental health impacts on the workforce.
• The structural design of the insurance industry, characterized by annual underwriting and pricing cycles, is incompatible with the multi-decadal nature of climate risk, which discourages long-term resilience investments and erodes client trust.
• Innovative tools like parametric insurance and Contingent Business Interruption (CBI) cover are limited by rigid payout triggers, 'basis risk' (where payouts don't trigger despite actual losses), and a lack of visibility into multi-tier supplier networks.
• Insurance can shift from a stabilizer to a risk amplifier if the loss of insurability triggers a macro-financial pathway where assets become harder to finance, refinance, or sell, thereby tightening credit conditions.
• The increase in insured losses is driven not only by intensifying hazards but also by the continued accumulation of high-value assets in hazard-prone areas and policy distortions that suppress risk-based pricing signals.

APA

Mikaelsson, M. (2026). Insurance and reinsurance under climate stress. Stockholm Environment Institute. https://www.sei.org/wp-content/uploads/2026/01/insurance-reinsurance-supply-chains-sei2026-002-corr.pdf

Chicago

Mikaelsson, Mikael. Insurance and reinsurance under climate stress. Stockholm Environment Institute, 2026. https://www.sei.org/wp-content/uploads/2026/01/insurance-reinsurance-supply-chains-sei2026-002-corr.pdf.

Wikipedia

{{cite report |last1=Mikaelsson |first1=Mikael |title=Insurance and reinsurance under climate stress |publisher=Stockholm Environment Institute |date=January 2026 |url=https://www.sei.org/wp-content/uploads/2026/01/insurance-reinsurance-supply-chains-sei2026-002-corr.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{mikaelsson2026insurance, author = {Mikaelsson, Mikael}, title = {{Insurance and reinsurance under climate stress}}, institution = {Stockholm Environment Institute}, year = {2026}, month = jan, url = {https://www.sei.org/wp-content/uploads/2026/01/insurance-reinsurance-supply-chains-sei2026-002-corr.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }