Ernst Rauch, a climate expert at Munich Re, a prominent reinsurance company, emphasizes a stark reality: as climate change intensifies, so too will the financial burden of damages — a cost that insurers, governments, or individuals will ultimately bear.
Insurance operates on the principle that premiums from many policyholders offset the payouts to the few who suffer losses. However, with a rising frequency of extreme weather events, insurers are increasingly transferring their risks to reinsurers like Munich Re, a company long studying climate change’s implications on its operations.
California serves as a poignant example where State Farm, citing escalating catastrophe risks and soaring construction expenses, ceased issuing policies. Ernst Rauch notes that insurance claims in the state have surged from annual damages in the billions to well over $10 billion today.
Globally, damages from natural disasters now exceed $100 billion annually, with weather-related incidents accounting for 80-90% of these costs, Rauch reports. The impact of climate change extends beyond direct losses, affecting economies and communities worldwide.
In Germany, extreme weather events — from floods to droughts — have cost upwards of €80 billion in recent years, a figure that includes infrastructure damage and lost productivity, underscoring the broader economic toll.
Rauch underscores that socio-economic factors amplify these costs; rapid urbanization and development in vulnerable areas compound the risk. Furthermore, insurance coverage remains inadequate, with only half of global natural disasters insured, and even fewer in Germany, such as flooding.
Looking ahead, Rauch warns of a future where insurance may become unattainable in high-risk regions, akin to developments in California. He notes that regulatory constraints on premium increases in the U.S. prevent insurers from reflecting growing risks, prompting companies like State Farm to withdraw from vulnerable markets.
Germany faces potential economic damages ranging from €280 to €900 billion by 2050 due to climate change impacts, excluding broader societal costs. To mitigate these risks, Rauch stresses the importance of proactive measures such as flood defenses and climate-resilient infrastructure.
The German Insurance Association echoes these concerns, advocating for climate-adapted planning and construction to mitigate future risks. Urgent action, it asserts, is critical to prevent a potential doubling of homeowners’ insurance premiums within a decade.
European authorities, according to the European Environment Agency, must accelerate efforts to reduce emissions and implement robust adaptation strategies to minimize climate risks across the continent.
As the climate crisis escalates, the imperative for preemptive action grows more urgent. The challenge, Rauch emphasizes, lies not only in mitigating damages but in reshaping societal and economic structures to withstand the growing threat posed by climate change.
