Bert Kramer (Ortec Finance): Climate change and the emerging insurability crisis

January 13, 2026

By Bert Kramer, Head of Climate Research at Ortec Finance and Lecturer Econometrics & Finance at the University of Groningen

Intensifying extreme weather caused by global warming is driving higher insurance costs and insurer exits, threatening mortgage markets, sovereign debt, and financial stability worldwide.

Climate change is a persistent reality, with rising temperatures and increasingly visible consequences. According to Swiss Re, inflation-adjusted insured losses from natural catastrophes — primarily climate-related — are growing by 5%–7% annually. Industry leaders like Günther Thallinger from Allianz warn that if global warming reaches 3°C, traditional risk transfer mechanisms will fail, rendering insurance unavailable and undermining the foundations of the financial system.

Based on current policies, we are heading towards 2.6°C warming by 2100 (Climate Action Tracker). Even at 2°C warming, which is likely within decades, insurance may become unaffordable for many. This threatens the viability of mortgage markets as homeowners in high-risk areas without insurance will lose access to loans and mortgages. Consequently, house prices will fall.

Global trends in insurance availability and affordability

Climate change increases the frequency and severity of extreme weather and it puts upward pressure on inflation. Across the world, climate change is making insurance less accessible and more expensive, with significant consequences for homeowners and financial markets.

• United States: The percentage of uninsured homes has more than doubled in five years, rising from 5% in 2019 to 12% in 2024. Insurance premiums have surged by 38%, nearly twice the rate of inflation. The Federal Reserve warns that, within 10–15 years, some regions may become uninsurable, making mortgages unattainable.
• Europe: Only 20–25% of catastrophe losses are insured and the protection gap is widening. In the Netherlands, while current insurability issues are limited, certain risks – such as pile rot and flooding from the North Sea, Wadden Sea, and major rivers – are not covered by insurance. The Netherlands is strengthening its flood defenses for an expected 60 centimeters sea level rise by 2100. However, the KNMI warns that extreme scenarios could see sea levels rise by as much as 2 meters. Pile rot affects approximately 800,000 homes, with an average cost of € 64,000 per house according to a 2019 Ecorys report, costs that homeowners must bear themselves.
• Australia: The share of ‘affordability-stressed’ households – those paying more than four weeks of gross income for insurance – rose to 15% in 2024, up from 10% in 2022 and 12% in 2023, highlighting a growing affordability crisis.

Implications for asset valuation and financial markets

Asset valuations have yet to fully reflect the long-term financial and economic impacts of climate change, such as sea level rise, productivity loss, and extreme weather. This is due to two main challenges: limited data on future physical risk exposure and disagreement over the implications of different warming pathways. As a result, physical risks are currently not adequately priced into real estate and other asset classes.

A sudden repricing could be triggered by an insurability crisis, especially if insurers withdraw from more regions following severe extreme weather events. The timing of such shocks is uncertain, but the acceleration of global warming and extreme weather increases the likelihood of earlier-than-expected disruptions.

Sovereign risk and public sector exposure

Countries are at risk of losing billions of dollars due to the impact of climate change. Governments often act as insurers of last resort, providing post-disaster aid or assuming risks through public insurance schemes. As the protection gap widens, public finances are facing mounting pressure, further threatening the sustainability of sovereign debt.

Strategic response

To limit the devastating impacts of a hothouse world, all countries should decarbonize as rapidly as possible. However, in these politically challenging times, rapid decarbonization might be difficult to achieve. Therefore, we also need credible mechanisms to remove carbon dioxide from the atmosphere. Additionally, we need to invest in adaptation (e.g., flood barriers, resilient building codes) to make our economies and assets more resilient to future climate impacts.

Insurers should explicitly incorporate these adaptation measures taken into their pricing. In a 2023 report, the European Insurance and Occupational Pensions Authority (EIOPA) sees room for improvement in terms of standardizing the implementation of climate-related adaptation measures in insurance contracts.

Finally, conducting climate scenario analyses that quantify potential impacts across asset classes, economies and sectors is also essential. These analyses should consider various plausible climate futures and realistic market pricing responses to physical risks, providing critical insights for developing resilient investment strategies.

Without decisive and preventative action, the insurability crisis will undermine not just individual homeowners, but the stability of global financial systems.