What the 2026 Climate Reports Mean for Insurance

Climate change is no longer a distant scenario for insurers. It is already changing where losses happen, how severe they can become, how risks are priced, and in some cases whether they can be insured at all.

At the same time the industry is building new ways to respond, from better catastrophe models and resilience-based pricing to parametric cover and alternative risk transfer.

The latest climate and catastrophe reports make one thing clear. A quiet year for claims should not be confused with a reduction in underlying risk.

Climate change is changing the insurance risk equation

Insurance has always dealt with hurricanes, floods, wildfires, droughts and severe storms. What is changing is the environment in which those events happen.

A warmer atmosphere and warmer oceans contribute to more severe extremes. Heat and drought raise wildfire and agricultural risk. Heavy rainfall raises flood exposure. Tropical cyclones can concentrate an enormous insured loss into a matter of days.

For insurers the effect goes beyond simply having more bad weather. Higher physical risk means higher claims frequency, greater severity and larger potential catastrophe payouts. Meanwhile property values, rebuilding costs and the amount of development in exposed areas all keep growing.

That combination is the thing that matters. A hurricane crossing an undeveloped coastline is one event. The same storm crossing an area packed with expensive homes, commercial property and infrastructure is an entirely different insured loss.

Which is why climate risk now reaches almost every part of the value chain: underwriting, pricing, accumulation management, reinsurance, claims, product design and capital allocation.

And the indicators point one way. The Copernicus Climate Change Service’s Global Climate Highlights, published in January 2026, recorded 2023 to 2025 as the first three-year period to average more than 1.5°C above pre-industrial temperatures. The World Meteorological Organization’s State of the Global Climate puts the last eleven years among the eleven warmest on record.

“July 2026 was the third consecutive month of exceptional heat in western Europe, bringing the combined temperature for June and July to a new record for the region.”
Samantha Burgess, Strategic Lead for Climate, European Centre for Medium-Range Weather Forecasts

None of that converts neatly into a percentage increase in claims. It does mean that catastrophe assumptions built mainly on historical experience get harder to rely on every year.

A catastrophe can change the loss picture overnight

Hurricane Melissa is the example worth sitting with. When the Category 5 storm hit Jamaica in October 2025 it caused billions of dollars of damage, most of it uninsured.

But Jamaica had another layer. The country had transferred part of its hurricane risk to the capital markets through a World Bank catastrophe bond, Melissa met the bond’s predefined parametric conditions, and it paid out the full $150 million.

That payment did not wait on thousands of individual loss assessments. The trigger was measurable characteristics of the storm itself, including its track and central pressure.

Melissa therefore illustrates three things at once. Climate-related catastrophe risk is rising, large protection gaps remain, and new structures are emerging to fill part of the gap.

The story did not end with the payout. In May 2026 the World Bank placed a replacement catastrophe bond giving Jamaica $200 million of hurricane protection through 2030.

The climate trend is becoming harder to ignore

There will always be variability from one year to the next. Some seasons bring more hurricanes and some fewer. El Niño and La Niña move temperatures and storm activity. A single region can have an unusually mild or unusually brutal year.

Underneath the noise, the trend holds. The WMO’s Global Annual to Decadal Climate Update expects temperatures to stay at or near record levels for years, and puts an 86% probability that at least one year between 2026 and 2030 beats 2024 as the warmest on record.

That is more useful to an underwriter than arguing about whether 2025 was technically the second or the third warmest year in a particular dataset. The business question is simpler. Is the environment in which insurers write catastrophe risk getting easier or harder?

Harder.

And climate is only half of it, because exposure is growing too. More property is being built in catastrophe-prone areas, asset values are rising, replacement costs have gone up and infrastructure is more interconnected than it was. Even if the hazard held perfectly still, that growth alone would keep pushing insured catastrophe losses higher.

A quiet claims year does not mean lower risk

The distinction became very visible across 2025 and the first half of 2026.

Swiss Re Institute put global insured natural catastrophe losses at around $107 billion in 2025, below the long-term trend despite major wildfire, severe convective storm and flood losses.

The first half of 2026 was quieter still, and the estimates cluster: Swiss Re says $42bn, the lowest first half since 2020, Munich Re says $44bn, Gallagher Re $46bn and Aon $47bn.

It would be easy to read those numbers as good news. For claims departments and for balance sheets they are. They do not mean the underlying risk fell.

“A less costly first half does not mean risk disappeared. One major hurricane, earthquake or wildfire can quickly change the picture.”
Balz Grollimund, Head Catastrophe Perils, Swiss Re Institute

Catastrophe losses are volatile by nature. One hurricane, earthquake, flood or wildfire can rewrite the annual result. Which is why the models point somewhere other than recent experience.

Verisk’s Global Modeled Catastrophe Losses report, published on 1 September 2026, raised the expected insured loss in an average year to $171 billion, up $19bn on a year earlier and the highest figure the modeller has ever published. A 1-in-100 year models at $477bn.

The gap between what was paid and what is modelled is the whole point. Nobody can price tomorrow’s catastrophe exposure off what they paid yesterday.

Secondary perils are becoming primary concerns

The other change is in the type of event driving claims. The industry has always focused on major hurricanes and earthquakes, but recent years have shown how expensive the so-called secondary perils get.

Wildfires, severe convective storms, hail and floods can generate enormous aggregate losses without a single headline catastrophe dominating the year.

That is a different underwriting problem. Instead of preparing mainly for rare mega-events, insurers have to manage repeated, geographically dispersed losses that accumulate across a portfolio all year. It puts far more weight on granular exposure data, catastrophe modelling and accumulation management.

It also changes what property-level information is worth. Two buildings in the same postcode can have very different vulnerability depending on the roof, the construction type, the surrounding vegetation, the elevation or the flood defences. Increasingly the individual risk has to be understood, not a broad geographic proxy for it.

In some markets, insurers are already pulling back

The consequences are showing up in availability and price.

In the United States the NAIC’s first national analysis of the homeowners market found that between 2018 and 2024 inflation-adjusted average premiums rose 18.3% to 43.3% depending on the region, while insurer-initiated non-renewal rates rose 96% to 216%.

Climate risk is not the only cause. Construction costs, inflation, litigation, regulation and local market conditions all contribute. But in places with real wildfire, hurricane or flood exposure the underlying problem is getting hard to talk around.

There is a price at which almost any risk is theoretically insurable. The difficulty starts when risk-adequate pricing exceeds what the customer can actually afford.

“Certain locations and perils cannot be covered as we would wish them to be covered. We cannot help it.”
Günther Thallinger, Member of the Board of Management, Allianz SE

At that point insurers cut capacity, tighten underwriting requirements, raise deductibles, restrict coverage, or leave the market. The result is a widening protection gap, arriving exactly when households and businesses need catastrophe cover most.

Reinsurance is cheaper, for now

Here is the apparent contradiction in the 2026 market. Catastrophe models and climate reports keep pointing at rising risk, and reinsurance has got more abundant and cheaper anyway. After the mid-year renewals, Guy Carpenter’s global property catastrophe Rate-on-Line Index was down roughly 16%.

Good conditions for a cedent. But reinsurance markets move much faster than the climate does.

“A quiet hurricane season can lead markets to respond as if risk has eased: rates soften, insurers keep more risk on their own books, and more capital competes to write new business.”
Rob Newbold, President, Verisk Catastrophe and Risk Solutions

A stretch without a major insured hurricane brings in capacity and softens pricing. One bad season reverses it. For insurers and MGAs watching the market, that opens a window rather than a trend: capacity is available now, while the case for new approaches to catastrophe risk is getting clearer. It is a better time to experiment with alternative structures than to wait for the next hard market, and the same logic runs through the two-speed soft market more broadly.

Parametric insurance is moving closer to the mainstream

One of those alternatives is parametric insurance, and the appeal is easy to state. Traditional indemnity cover asks how much the policyholder lost. A parametric policy asks whether the defined event happened, and pays on agreed terms when the trigger is met.

Jamaica’s catastrophe bond is the sovereign-scale version. The same idea is increasingly written for businesses, municipalities and smaller groups of insureds.

In June 2026 Liberty and the satellite operator ICEYE launched a building-level parametric wildfire cover, using satellite data to establish whether a covered structure has been destroyed and release funds quickly after an event.

“By pushing the boundaries of technology, we are delivering a new generation of parametric wildfire coverage that is faster, more responsive, and fully data driven.”
Jean-Christophe Garaix, Head of Parametrics & Agriculture, Liberty

Similar work is under way for flood, extreme heat and other weather exposures, which is the same direction as parametric cover beyond catastrophe generally.

This does not make indemnity insurance obsolete, and parametric products carry their own problem in basis risk. What they solve is speed. An insured who needs liquidity immediately after a catastrophe cannot afford to wait weeks or months for loss adjustment, because the delay becomes a second financial problem on top of the physical damage. A parametric layer can sit alongside indemnity cover and fund the first stage of recovery.

Better risks should get better prices

Insurance can also act before the catastrophe. Rather than raising premiums across an entire high-risk area, an insurer can reward the measures that genuinely reduce expected loss.

Louisiana is the working example. The state’s Regulation 136 requires premium discounts for qualifying homes carrying a FORTIFIED designation, tying the price of hurricane cover to verified mitigation.

The principle is the part that travels. Price the characteristics of the building, not only the postcode. A strengthened roof or improved flood protection materially changes expected loss, and if that difference reaches the rating engine, insurance stops being only a way of paying claims and becomes part of the incentive to make property more resilient.

It opens product space too. Covers for extreme heat, flood, wildfire and weather-related business interruption. Parametric layers sitting under conventional deductibles. Embedded weather cover sold at the point the exposure is created. No single product solves climate risk; the opportunity is a portfolio of specialty insurance products aimed at increasingly specific risks.

Climate risk is becoming a product and technology problem

Which has an operational consequence. New products are only worth anything if they can be launched and changed quickly.

Climate covers tend to need rating factors, external data feeds, satellite inputs, parametric triggers or mitigation attributes that no traditional policy administration system was built to hold. If every test of a new idea needs a development project and a release calendar, the underwriting team stops testing ideas.

So the technology stack becomes part of the climate response. A wildfire product needs a new trigger and a new data source. A resilience-based property product needs extra underwriting questions and rating factors, which is product configuration rather than development. A parametric programme needs an automated payout when an external feed crosses a threshold. And all of it still needs the unglamorous parts to work: policy administration, claims, billing, reporting and bordereaux reporting for whoever supplies the capacity.

The goal is not to predict how the climate develops over the next decade. It is to be able to change the product as fast as the risk does.

The quiet period will not last

The industry got an odd combination of signals in 2026. Recent catastrophe losses have been moderate. Reinsurance capacity is strong and pricing has softened. And at the same time climate indicators stay elevated, the models project higher expected losses, and insurers in the exposed markets are already restricting cover.

Those signals are not contradictory. They run on different clocks. Claims describe what just happened, catastrophe models describe what could happen, and climate data describes how the underlying environment is shifting. An insurer needs all three.

The companies that handle this well will not simply raise rates everywhere or walk away from every difficult risk. They will select better, work from more granular data, reward resilience, use alternative risk transfer where it fits, and build cover for exposures the market serves badly today.

Because the question is no longer whether climate change affects insurance. It already does. The useful question is what insurers do about it.