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🌡️ '''Climate change risk''' is the broad category of [[Definition:Peril | perils]] and financial exposures that insurers face as a result of long-term shifts in global climate patterns, encompassing physical risks like intensifying hurricanes and wildfires, transition risks tied to the move toward a low-carbon economy, and [[Definition:Liability risk | liability risks]] arising from litigation against entities deemed responsible for environmental harm. For the insurance sector, climate change risk is not a distant abstraction — it is already reshaping [[Definition:Underwriting | underwriting]] profitability, [[Definition:Reinsurance | reinsurance]] pricing, and [[Definition:Reserving | reserve]] adequacy across property, casualty, and specialty lines.

📊 Insurers confront this risk through multiple transmission channels. Physical risk drives up [[Definition:Claim | claims]] frequency and severity in [[Definition:Property insurance | property]], [[Definition:Crop insurance | crop]], and [[Definition:Business interruption insurance | business interruption]] portfolios as extreme weather departs from historical norms. Transition risk materializes when regulatory shifts — carbon taxes, emissions mandates, or stranded-asset write-downs — impair the value of insured assets or alter [[Definition:Directors and officers liability insurance (D&O) | D&O]] and [[Definition:Professional liability insurance | professional liability]] exposures. Liability risk emerges through climate-related lawsuits, where plaintiffs seek damages from corporations or governments, potentially triggering [[Definition:General liability insurance | general liability]] and [[Definition:Errors and omissions insurance (E&O) | E&O]] policies. [[Definition:Catastrophe model | Catastrophe modelers]], [[Definition:Rating agency | rating agencies]], and regulators now expect [[Definition:Insurance carrier | carriers]] to quantify these exposures explicitly, often through scenario analysis aligned with frameworks such as the Task Force on Climate-Related Financial Disclosures.

🔎 Failure to properly assess and price climate change risk can destabilize individual carriers and entire [[Definition:Insurance market | insurance markets]]. The withdrawal of [[Definition:Homeowners insurance | homeowners coverage]] in wildfire-prone regions of California and hurricane-exposed zones of Florida illustrates how mispriced risk eventually forces market dislocation. For [[Definition:Reinsurer | reinsurers]], a single catastrophic season can erode years of [[Definition:Premium | premium]] income. The industry's response — better data, more granular [[Definition:Risk segmentation | risk segmentation]], and innovative [[Definition:Insurance-linked security (ILS) | capital market instruments]] — will determine whether private insurance remains the primary mechanism for absorbing climate-driven losses or whether governments must step in as [[Definition:Insurer of last resort | insurers of last resort]].

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Climate change adaptation]]
* [[Definition:Climate mitigation]]
* [[Definition:Catastrophe model]]
* [[Definition:Nat cat insurance]]
* [[Definition:Stress testing]]
* [[Definition:Insurance-linked security (ILS)]]
{{Div col end}}

Definition:Climate change risk - Revision history

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