Climate Change & Insurance: Physical risks on the insurance industry

Climate change is increasingly recognised as a multi-dimensional issue for the insurance industry. It gives rise to physical risks, such as extreme weather events and longer-term environmental change, transition risks arising from the shift towards a lower-carbon economy, and interactions between these risk types. These risks can, in turn, affect ecosystems, communities, economies, and the conditions under which insurance markets operate.

To support a clearer baseline understanding of these issues, the Global Asia Insurance Partnership is developing a three-part policy paper series on Climate Change & Insurance. The series will examine:

1. Physical risks and their implications for the insurance industry,
2. Transition risks arising from policy, technology, market, consumer, and investor shifts, and 
3. The interaction between physical and transition risks, and what this means for the insurance ecosystem. 

This paper examines five categories of physical risk: heat, precipitation, wind, cryosphere change, and coastal and oceanic change. It explores how these risks can cascade through ecosystems, human wellbeing, and economic activity, and considers their implications for underwriting, pricing, claims, investment portfolios, and long-term insurability.

Illustrative case studies, including Typhoon Yagi, highlight the interconnected nature of physical risks and how a single climate event can affect multiple systems simultaneously, including homes, businesses, infrastructure, health, supply chains, public finances, and insurance markets.

Authors: Yao Lei, Zhan Xiong Yeo

Download the paper