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🌍 '''Climate risk''' is the exposure that [[Definition:Insurance carrier | insurers]], [[Definition:Reinsurer | reinsurers]], and the broader insurance value chain face from the physical, transitional, and liability consequences of a changing climate. Physical risk encompasses the increasing frequency and severity of [[Definition:Catastrophe | catastrophic events]] — hurricanes, wildfires, flooding, and extreme heat — that directly drive [[Definition:Insured loss | insured losses]]. Transition risk arises as economies shift toward low-carbon models, potentially stranding assets held in insurer [[Definition:Investment portfolio | investment portfolios]] or altering the risk profiles of industries they underwrite. Liability risk emerges when parties harmed by climate change seek compensation through litigation, generating new [[Definition:Claim | claims]] under [[Definition:Directors and officers insurance (D&O) | D&O]], [[Definition:Professional liability insurance | professional liability]], and [[Definition:General liability insurance | general liability]] policies.

⚙️ Insurers engage with climate risk on both sides of the balance sheet. On the [[Definition:Underwriting | underwriting]] side, [[Definition:Catastrophe modeling | catastrophe models]] — traditionally calibrated to historical loss patterns — are being recalibrated to incorporate forward-looking climate projections, a shift that has profound implications for [[Definition:Pricing | pricing]], [[Definition:Capacity | capacity]] deployment, and [[Definition:Risk selection | risk selection]] in property-exposed lines. [[Definition:Rating agency | Rating agencies]] like AM Best and S&P Global now evaluate how carriers incorporate climate scenarios into their [[Definition:Enterprise risk management (ERM) | enterprise risk management]] frameworks, and regulators — including the [[Definition:National Association of Insurance Commissioners (NAIC) | NAIC]] through its Climate and Resiliency Task Force — are requiring increasingly granular disclosures of climate-related exposures. On the investment side, insurers with large fixed-income and equity holdings must assess how decarbonization policies, carbon pricing, and physical damage could erode portfolio values.

📊 The stakes for the industry are existential in certain markets. Homeowners' insurance in wildfire-prone areas of California and hurricane-exposed zones along the Gulf Coast has already seen carrier withdrawals, non-renewals, and surging [[Definition:Premium | premiums]], forcing state [[Definition:Residual market | residual market mechanisms]] to absorb risk that the private market deems uninsurable at regulated rates. [[Definition:Reinsurance | Reinsurance]] pricing at the January 1 renewals has become a bellwether for how the global market reprices climate-driven volatility year over year. For [[Definition:Insurtech | insurtechs]] and [[Definition:Managing general agent (MGA) | MGAs]], climate risk also presents opportunity: parametric products triggered by objective weather indices, satellite-based [[Definition:Loss adjustment | loss adjustment]], and real-time [[Definition:Risk mitigation | risk mitigation]] services are all growth areas born from the industry's need to adapt.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Catastrophe modeling]]
* [[Definition:Natural catastrophe (nat cat)]]
* [[Definition:Parametric insurance]]
* [[Definition:Enterprise risk management (ERM)]]
* [[Definition:Residual market]]
* [[Definition:Insured loss]]
{{Div col end}}

Definition:Climate risk - Revision history

PlumBot: Bot: Creating new article from JSON