A stark warning has been sent out in a memo from an anonymous group of over 20 senior professionals from within the insurance industry about the risks they perceive of climate impacts to the UK and Europe. It was released last week by the campaigning organisation Inside Track [no relation to this blog] and says:
“As both domestic and commercial property insurance is limited or withdrawn at a significant scale, we foresee an economic risk that could precede a financial crash in the way that the sub-prime mortgage crisis catalysed the Global Financial Crisis.”
It makes clear that experts with the best access to data, models and insight are aware of how severe the risk of impacts on homes, buildings and infrastructure has become. They also think that the general public – and indeed the government – has not yet realised this.
How exposed are we?
Families, businesses and local governments around the country may be unaware of the very real risk that their circumstances could drastically change over the coming year as insurance is repriced, limited or withdrawn. Anchored in 12 monthly cycles, insurers can react to changing risks in a way those with 30 year mortgages can’t.
As noted by these insurance insiders, “these are not just risks that will affect some of the population, they are fundamental and systemic economic risks.” With subsidence, floods, wildfires, extreme weather and coastal erosion intensifying, more and more UK homes, offices, warehouses and public buildings will be affected.
In the run up to the autumn budget, with serious pressure on the chancellor’s decisions, the warning of another systemic impact on the scale of a major financial crash could hardly come at a worst time.
Who should pay for this exposure?
One question not yet being asked enough in the coverage of these revelations is who will pay the price for climate damages no longer covered by insurance?
It’s clear that negative financial consequences from climate change will increase for households, businesses, public services and farming communities. So who should foot the bill? The unlucky households and businesses most affected? Taxpayers? Or should it be the cause of it all, the fossil fuel industry? After all, the idea that the polluter should pay for environmental damage is one of the government’s five core environmental principles.
Will the summer of 2026 finally lead to mitigation?
After the previously suppressed national security report on ecosystem collapse was published in January, following a freedom of information request by Green Alliance, and then the hottest summer on record, we now have this warning from the insurance industry that it can’t continue to protect us as it has done against growing climate impacts.
Business as usual simply isn’t an option under expected warming trajectories, particularly when dangerous climate tipping points are breached. This alert from insurance experts further underlines the need to make much more rapid progress on curbing and adapting to climate change. They note that “decisions made today at a policy level … will determine whether today’s threats increase exponentially or reduce over the years ahead”.
Green Alliance’s work on methane, a potent greenhouse gas which could quickly be reduced, outlines one area where rapid progress could be made. But, just when it is needed most, political consensus on action is weaker than it has been for years, with views on how to handle climate change polarising.
Insurance itself could be an important part of the solution, both through the cover it provides and its support of sensible climate policy that makes the future more predictable.
And there are opportunities for the government to respond. Last week, the environment minister Emma Hardy relaunched the government’s Flood Taskforce. The hope is that it will gather all the data needed to understand the risks communities are facing and that, in developing a response, it heeds this serious warning from the insurance industry.
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