Climate disasters cost insurers 6.5 billion euros in 2023, and “the bill will not stop increasing”, according to François Gemenne

Every Saturday, we decipher climate issues with François Gemenne, professor at HEC, president of the Scientific Council of the Foundation for Nature and Man and member of the IPCC.

Compensation for claims linked to climate disasters cost insurance companies 6.5 billion euros in 2023, making it the third most expensive year, according to the France Assureurs federation, which publishes these figures on Wednesday March 27. And it keeps increasing. In the 2000s, it was 2.7 billion euros on average and in the 2010s, 3.7 billion. “Climate change is becoming more and more expensive and this is also reflected in the cost of insurance policies, the CatNat surcharge, for example, will increase from 12 to 20% in 2025. And unfortunately, it is a bill that will not stop increasing”explains François Gemenne.

franceinfo: But until when? Henri de Castries, the former boss of Axa, said: “a world four degrees warmer is no longer insurable”.

That’s the whole question. We are already seeing certain insurers withdrawing from certain regions and refusing to insure certain risks. This is the case in the United States, in particular. StateFarm, the leading Californian insurer, which is nevertheless a mutual insurer, now refuses to insure new homes, due to both inflation in construction costs, but also increasing exposure to climate risks, and in particular to forest fires. And not only does StateFarm refuse to take on new customers, but it will also terminate 72,000 contracts this summer, which will not be renewed for the same reasons. And since other companies, like AllState or Hippo Insurance, apply the same policy, it becomes complicated. And it’s the same in Florida, where the Farmers Insurance company is now refusing certain contracts, due to the risk of hurricanes. And we know that climate change is increasing the frequency and intensity of hurricanes.

Are people at risk of finding themselves without insurance? Could we imagine this in France?

We can obviously fear this, even if we do not have an insurance model in France as liberal as in the United States. The State intervenes much more to guarantee solidarity, in particular via the natural disaster compensation scheme.

“In Overseas, the lack of home insurance already concerns more than 30% of owners, while it is marginal in mainland France.”

François Gemenne

at franceinfo

There is a real question of solidarity that arises here, particularly for homes that are very exposed, for example those located on certain parts of the coast. By 2100, we could have to relocate up to 50,000 homes. Will we still be able to insure homes in risk areas tomorrow? Should premiums be modulated further to discourage housing in risk areas? For the moment, the French model is very supportive and therefore makes it possible to maintain relatively low prices in risk areas. But it also tends to relieve policyholders of their responsibility.

How can insurance companies fulfill their mission of protection against climate change?

We will have to integrate insurance companies more into our adaptation strategies, otherwise we will not get through this, the bills will not stop climbing, and solidarity will crack. There are lots of things to do, I’ll give you a few examples. Globally, the number of people living in risk areas continues to increase. How can insurance policies further support the reorganization of land use planning, particularly to encourage housing in safer areas? In rural areas, how can agricultural insurance change agricultural models? What crops are we insuring against, against what risks? And more generally, how can our knowledge and management of risks improve thanks to actuarial models? For a long time, it was said that the best climate models were not in university laboratories, but in insurers, and especially in re-insurers, the insurers of insurers.

If there is one category of companies that must anticipate risks, it is insurance, right?

Obviously. Insurance has a big role to play in our adaptation policies. And this is even more the case in the countries of the South, where it is estimated that only 3% of property is insured.

“The role of insurance should not only be about adaptation. When it comes to reducing emissions, insurers also have a key role to play.”

François Gemenne

at franceinfo

They carry out numerous fossil fuel extraction projects around the world. As long as the coal, oil and gas industries find insurers for their new projects, we will continue to develop these projects. Because the problem today is that these fossil fuel expansion projects continue to be carried out, while we have great difficulty in ensuring energy transition projects in the countries of the South.

However, without energy transition in the countries of the South, it will be very complicated to achieve the objectives of the Paris Agreement. But for the moment, investments in the countries of the South are totally insufficient, because they are riskier investments, due to the political and economic context. And therefore, no insurer wants to take the risk of the first loss on these investments. This is where we need to develop partnerships with development banks, which could guarantee these investments, and thus open the way to private insurers. So the insurance sector holds the keys to the transition, along with the banks! But it’s not just the banks.