Climate Change & Insurance: The Interaction of Physical and Transition Risks

Climate change affects the insurance industry through physical risks, such as extreme weather events and longer-term environmental change, and through transition risks arising from the shift towards a lower-carbon economy.

Physical risks and transition risks are often examined as distinct dimensions of climate risk. However, in practice, their impacts can overlap and interact across insurance markets and the broader economy. 

We launched the first two papers in our three-part policy paper series on Climate Change & Insurance: Physical Risks on the Insurance Industry, and Climate Change & Insurance: Transition Risks on the Insurance Industry. 

Building on the foundations established in the first two papers, this final paper examines physical and transition risks as connected parts of a broader climate risk system. It explores how their interactions can affect life and health insurers, property and casualty insurers, reinsurers, brokers, regulators, policyholders, and wider insurance markets. The paper also considers three strategic priorities for the sector: integrated risk intelligence, adaptive protection design, and investment alignment.

Authors: Yao Lei, Zhan Xiong Yeo

Download the paper