How the insurance sector could become the first bottom-up driver of climate action

While (increasingly smaller) parts of the global population still question whether climate change is real, or at least how much it matters for their daily lives, one sector is already feeling its effects directly. The insurance industry exists to measure and price risk, and the steady rise in natural disasters is starting to disrupt that business model in a fundamental way.

We see this most clearly abroad. In California, wildfires have become a near-annual disaster. The result? High-risk areas have become uninsurable, leaving homeowners with few options. As a result, the state’s “insurer of last resort” — the California FAIR Plan — has seen enrollments surge from roughly 330,000 policies in September 2023 to about 610,000 by June 2025. In Australia, the pressure is equally visible. After the catastrophic floods of 2022, affordability has become a national issue. For properties in high-risk zones  (areas exposed to floods or bushfires) premiums spiked by roughly 50% between 2022 and 2023. Today, more than 1.6 million households are classified as being in “insurance stress,” struggling to pay for cover that is increasingly out of reach. Although matters aren’t quite that severe yet in Belgium, the 2021 “water bomb” was a clear wake-up call. It revealed how vulnerable the country is to extreme rainfall and how jurisdictional clarity is needed to prevent issues in the future.

Rising costs and growing uncertainty

Insurers are already paying more in claims each year, and reinsurers  (the companies that insure insurers) are raising their own prices to cope with escalating risks. That combination pushes premiums up across the board. If this trend continues, certain regions are at risk of becoming uninsurable.

The economic consequences are far-reaching. Homes without insurance lose value, mortgages become harder to obtain, and households face financial vulnerability. At a systemic level, governments risk becoming the “insurer of last resort,” with public budgets carrying costs that private markets can no longer absorb. Insurance may not be a sector in the spotlight, but it is the glue that keeps real estate, credit markets, and household security intact.

The first business model cracked by climate change

This makes insurance a special case. For sectors like industry or electricity, the impact of climate change is mostly mediated by policy - think carbon markets or emission standards. Insurers are different. Their business model is being reshaped not by regulation, but by the direct effects of climate change itself. In Belgium’s temperate climate this remains unusual; sectors such as agriculture in India already face structural impacts from droughts and extreme heat. But here, insurance is one of the first industries where climate impacts are translating directly into financial reality. That is why the pressure comes from the bottom up: rising claims, higher reinsurance costs, and growing uncertainty about what remains insurable.

That also means insurers are set to play a unique role in public awareness. Rising premiums and restricted coverage are not abstract climate models; they are bills landing in people’s mailboxes. And because the sector is economically central, its struggles become a loud signal to governments. If flood-prone regions want to remain insurable, they will need to invest in adaptation measures: from floodplains and drainage to stricter zoning rules. In this way, insurers could be the first bottom-up driver of climate action, forcing a conversation that politics alone has struggled to advance.

What’s next?

Several interesting developments are already reshaping how insurers and governments deal with climate risk. One is the rise of public–private disaster frameworks, as countries explore clearer rules on how to share costs when extreme events hit. Another is the growing push for investment in adaptation, from restoring floodplains to building more resilient infrastructure and zoning away from the riskiest areas. At the same time, citizen involvement is gaining attention, with incentives for households to take preventive measures themselves. And finally, new technologies such as AI-driven risk modelling promise to make climate risks visible at the street level, helping insurers and policymakers to price, plan, and prepare with far more precision than before.

At Ortelius, we see these shifts as signals that can’t be ignored. Insurance is not just another sector adjusting at the margins — it’s one of the first to feel the direct financial weight of climate change. How societies respond will shape not only the resilience of households and businesses, but also the choices governments make on adaptation. Understanding where the pressure builds and what it means for the wider economy is becoming essential.