Why climate change is a threat to insurability for property owners

Climate change is becoming one of the most significant threats to UK real estate. Property owners who fail to adopt a focused risk management and insurability strategy may, in the future, struggle to secure the level of insurance protection they currently enjoy — or find it unavailable altogether. The message to real estate owners and managers is clear: Now is the time to act, in order to future-proof your business.

The growing evidence of climate impact

When you consider that insurers paid out £875m in compensation for weather-related damage on home insurance policies in the UK in 2024 - the highest since the Association of British Insurers (ABI) began collecting and publishing data in 2017 ^{1, 2}, then it is easy to understand why the industry needs to pay attention.

Although inflation in repair costs and other economic metrics played a part in that story, it is clear that climate change has impacted the frequency of claims and is a growing risk that shows no sign of abating.^[1]

Climate change is, of course a global phenomenon and it is often tropical storms originating mostly in the warmer waters of the US and Asia, which drive the greatest losses and earn the biggest headlines.

This has led to (re) insurers seeing yearly losses exceeding USD 100bn on average over the last five years (that’s GBP 76.44bn and more than double the five-year average from two decades ago). ³

However, the UK is by no means exempt, with localised flooding and severe convective storms – involving strong winds and hail – making up the lion’s share of property losses.

In fact, losses from severe convective storms are increasing at a faster rate in Europe than in the US.

This is likely to add additional pressure for insurers to cover losses, and for policyholders to pay premiums, raising concerns about long term insurability.

What is insurability?

Insurability is the ability to secure affordable insurance for assets, investments, operations and projects. In the climate change era, maintaining insurability is fast becoming as important as maintaining a good credit rating.

Flooding, storms, extreme cold and extreme heat are the primary risk factors – and they are made harder to risk manage because predictable weather patterns of the past are no longer reliable.

As a result, there is a need to update business practices to account for changes in the climate and to develop risk management strategies that help future-proof your business – and, of course, to work with your insurance broker to build that strategy.

Impact on insurance

All the evidence is that as the effects of climate change increase and compound, purchasing insurance will become more complicated. It is highly likely that insurers will become much more selective as to which risks they take on, for instance.

They may apply additional requirements in respect of mitigation measures associated with climate risks and premiums could be increased for specific climate-related perils. Both of which will impact the investment value of the asset.

For many, not only will physical climate impacts remain an immediate threat, but the risk of becoming uninsurable will make them even more important to manage.

How Howden can help

With so many new variables in play, it is highly likely that the analytical models that you use to weigh options and decide actions are no longer fit for purpose.

Howden’s Climate Risk and Resilience team is available to upgrade your analytical capabilities to be relevant and optimised for the new climate-complex economy.

It includes:

• Advanced climate data modelling
• Bespoke scenario analysis
• Optimised risk transfer solutions
• Quantified financial impact studies

Our team of climate practitioners and specialist insurance brokers are also ready to support your insurability efforts. We’ll add value all the way from analysis and planning to insurance placement and claims advocacy.

Working together, we’ll build climate risk and insurability strategy into your decision-making models. By doing so, you’ll improve your negotiating position in the insurance markets, helping you achieve continuity of coverage.

If you require any guidance or have a specific query on any of the issues above, relating to your insurance package or risk management programme, please get in touch:

David Sabine, Executive Director of Real Estate Practice

e. [email protected]

^1. Association of British Insurers, 2024. More action needs to protect properties as adverse weather rakes record toll on insurance claims in 2024. More action needed to protect properties as adverse weather takes record toll on insurance claims in 2024 | ABI

^2. https://www.abi.org.uk/news/news-articles/2024/4/weather-damage-insurance-claims-worst-on-record

^[1] Association of British Insurers, 2024. More action needs to protect properties as adverse weather rakes record toll on insurance claims in 2024. More action needed to protect properties as adverse weather takes record toll on insurance claims in 2024 | ABI

^3. Banerjee, C., Bevere, L., Garbers, H., Grollimund, B., Lechner, R., and Weigel, A. 2024. Swiss Re Institute - sigma No1/2024. Natural catastrophes in 2023: gearing up for today and tomorrow’s weather risks. 2024-03-sigma1-natural-catastrophes.pdf