Nature’s new normal – why climate change is driving insurance claims skywards?

The insurance sector is in a unique position due to the dual role of providing insurance against claims and ultimately paying those claims. Over 90% of insured losses in 2025 concerned secondary perils from climate change issues. With increased costs come higher premiums and withdrawal of insurance in ‘higher risk’ zones. 

Year on year there are more natural catastrophes,  particularly with supercell storms and wildfires. There is an inevitable knock-on effect on claims both for property damage and injury.  We have seen and will see more of: 

• an increase in claims for heat related illness and death, 
• injuries and property damage claims due to storms, floods and wildfires, and 
• pollution sickness.

From a property damage perspective, this is already translating into more complex causation disputes, particularly where multiple contributing factors interact (e.g. design defects, inadequate maintenance and extreme weather). This raises difficult questions around proximate cause, policy response and the allocation of liability between insured perils and excluded or uninsured risks.

There is also a growing trend of claims involving “attritional climate damage” (e.g. repeated water ingress, ground movement from prolonged drought or gradual material degradation due to heat exposure) which do not fit neatly within traditional sudden-event policy triggers and may give rise to increased declinatures and coverage disputes.

Increased exposure due to economic development and huge urbanisation places people, property and possessions in the eye of the storm.  Damage claimed will be amplified due to concerns as to failure of materials used in building projects to withstand storms and ageing buildings which are not built for the present-day climate.   Insurers must prepare for an increase in storm damage and flood claims at a time when new building projects are taking place on known flood plains. The problem is simply perpetuating. 

A useful historical example are the changes in building codes and innovations which followed the 1906 San Francisco earthquake. Such devastation led to a fundamental change in city planning and we need to continue to learn from such events rather than focus on cheap rebuilding projects. 

In the current climate, this translates into increased scrutiny on compliance with modern building regulations, resilience standards and specification choices. Failures in design or construction (including inappropriate materials or non-compliance with updated standards) are likely to drive subrogated recovery actions by insurers following property damage losses.

We are also seeing upward pressure on quantum, driven by inflation in construction costs, supply chain disruption and scarcity of skilled labour following widespread catastrophic events. This not only increases indemnity spend but also extends claim lifecycles and business interruption exposures.

It is to the future where we must urgently look to attempt to limit exposure.  In acting on the the potential impact of climate change modelling the future claims landscape is crucial.  Artificial intelligence will inevitably have a role to build evidence-based resilience strategies which can adapt to changing weather patterns rather than using historical statistics.

For property insurers, this will require a shift from reactive claims handling to proactive risk selection and mitigation, including enhanced underwriting scrutiny of flood exposure, build quality and resilience measures, as well as closer alignment between underwriting, claims, and recovery strategies to reduce overall indemnity spend.