Climate risk rarely reaches a company first as a flood or a fire. It usually arrives as a letter from the insurer.
The market is repricing
Insured losses from natural catastrophes reached US$107 billion in 2025, and that was a below trend year. Swiss Re’s long term trend points to around US$148 billion in 2026. Much of that rise comes from more assets sitting in harm’s way, not only from a changing climate.
For a company, the cause matters less than the consequence: higher premiums, bigger deductibles, exclusions and sometimes no cover at all. When State Farm stopped accepting new property insurance applications in California in May 2023, it pointed to growing catastrophe exposure, rising construction costs and a difficult reinsurance market.
Insurers reprice every year. Most other signals of climate risk move far more slowly.
The renewal nobody escalated
A composite example shows how this plays out. A chilled food processor has two plants, one on a river floodplain. For years its risk register rated flooding as medium likelihood and medium impact, with an expected annual loss of about €0.3 million.
At one renewal, the insurer raised the flood deductible at that plant from €0.5 million to €5 million, excluded stock spoilage and lifted the premium by 40%. The insurance team handled it as a cost item.
Within a year a flood closed the plant for seven weeks. The loss was about €9 million, of which €6 million fell within the deductible or the exclusion. During the outage, a retail customer moved two product lines to another supplier and never brought them back.
Expected loss versus the worst case
The risk register wasn’t wrong: the expected annual loss barely changed at that renewal. What changed was the severe case. The loss the company would carry itself in a bad year rose more than tenfold, from about €0.5 million to €6 million.
That is why the Risk-Reward Ledger puts a severe case beside every event risk. Expected values are the right basis for comparing options, but they hide the shape of a loss, and it is the shape that decides whether a company survives one.
PG&E: when physical and legal risk multiply
PG&E is the extreme case. In January 2019, the owner of California’s largest electric utility filed for bankruptcy after estimating potential liabilities of more than US$30 billion from wildfires linked to its equipment. The financial press called it the first climate change bankruptcy.
Two risks that are usually assessed separately multiplied each other. A drying landscape raised the physical risk of fire, and California law, which can hold a utility liable for damage caused by its equipment even without negligence, turned that physical risk into a legal one. Each looked manageable on its own. Together, in a severe year, they exceeded what the company could pay.
Five actions for boards
- Treat the insurance renewal as a board item, not a procurement item. A higher deductible moves risk back onto your balance sheet.
- Record a severe case for every event risk, and set it against your liquidity, not just your risk appetite statement.
- Look at how risks combine. Physical, insurance and legal exposures often move together.
- Ask your broker for a three year view. Where are terms heading for your sites and sector, and what would keep you insurable?
- Price the alternative. Flood defences or relocation that keep a site insurable belong in the same comparison as the premium increase.
Insurers are among the few institutions that put a price on climate risk every year. When they move, that is information, and boards that read it early get to choose their response.