As extreme weather events around the world become more frequent and severe, so too has the cost of the damage they inflict. Since the 1970s, damages as a result of weather-related disasters have increased sevenfold, with 2022 alone seeing $313 billion in global economic losses. Insurance is used to safeguard people against the risk of losses as a result of damages during disasters, with the cost based on the probability of such losses occurring. Climate change is dramatically shifting the landscape of risks, with the number of severe and frequent disasters forecast to double globally by 2040, causing insurance prices to rise.
In places where extreme weather events increasingly wreak havoc, homeowners have seen prices climb by as much as 57 per cent since 2015, and people are struggling to afford coverage. Meanwhile, in the face of rising losses, some insurance companies in at-risk areas have decided to limit the amount or type of damages they can cover, cancel policies or leave the market altogether. Once insurance is no longer offered against certain risks (accessibility), in certain areas (availability) or at a reasonable price for homeowners (affordability), these areas are considered “uninsurable”. In Australia, for example, approximately 520,940 homes are predicted to be uninsurable by 2030, primarily due to increasing flood risk.
increase in the cost of disasters globally since the 1970s
global economic losses from disasters in 2022
homes predicted to become uninsurable by 2030 in Australia alone, due to climate change impacts
Despite this precarious situation, population growth and development continue in risky areas, as social and economic pressures influence more people to flock to places along the coasts, rivers, floodplains and wildland-urban interfaces. Such areas are increasingly prone to extreme weather events, putting more people and property in harm’s way. At the same time, the number and size of at-risk areas are predicted to expand as climate change shifts the range of hazards like wildfires and storms into new areas.
Without the ability to access insurance, people are exposed to drastic financial losses, and may also find it difficult to buy or sell uninsurable homes, affecting the stability of housing markets. The impacts go far beyond economic risk, however. The risk of rising inequality grows as people who are able to will likely move away. Those already vulnerable will be forced to stay and, in addition to those who come seeking cheaper housing in these areas, will face increasingly extreme events without insurance coverage. While efforts to address the issue of uninsurability have traditionally looked to economic solutions, such as government subsidies, to support affordability, relatively little attention has been given to reducing the underlying risks that have been escalating unchecked. Insurance can be a valuable tool to manage our risk when hazards strike; however, it has limits when the risks are too high. As such, insurance is most useful when used in combination with other risk reduction measures, and should not be perceived as a license to live in hazardous situations. Transformative approaches to tackle the underlying social and environmental drivers of risk are needed before we lose access to a valuable safety net when we need it most.
Tipping point: Increasingly severe hazards drive up the costs of insurance until it is no longer accessible or affordable. Once this point is passed, people are left without an economic safety net when disasters strike, opening the door to cascading socioeconomic impacts in high-risk areas.
Shared Root Causes
Human-induced greenhouse gas emissionsShared with Unbearable heat, Mountain glacier melting, Accelerating extinctions
Continued anthropogenic greenhouse gas emissions increase global temperatures, accelerating unfavourable conditions for physical, natural and human systems
Living and working in at-risk areasShared with Unbearable heat
People move to or remain in places that expose them to increased risk due to social or economic pressures