The growth in uninsured losses suggests traditional ways of doing insurance are at risk of lagging behind the threats to long-term resilience. These threats are arising from climate risks, as well as supply chain, geopolitical and cyber exposures.
Your risk management approach can keep pace with climate realities and ensure your role remains relevant. By advocating for modern means of identifying and quantifying climate risks plus alternative risk transfer options, such as captives and parametric solutions, you can better protect your organization and the contribution of risk management to its success.
Below, we offer practical steps to help ensure you’re part of the future of insuring climate risks. We cover:
Uninsured losses are growing faster than insured ones, creating a protection gap that threatens the relevance of insurance as a risk management tool.
From catastrophic flooding in Spain, to the second-worst wildfire season on record in Canada to record-breaking heatwaves across South America and the Caribbean, the world has experienced a new level of climate disruption in recent years.
Natural catastrophes caused more than US$100 billion in insured losses in 2025 – the sixth consecutive year above that threshold, yet a decrease of $40 billion when compared with 2024. The level of losses recorded, without a single hurricane making landfall in the United States, highlights the continued severity and persistence of natural catastrophe risk. These losses included the destruction of physical assets, such as factories and power grids, disruption of critical supply chains, business closures and halted production across entire sectors
We’ve seen how climate protection gaps are especially pronounced in regions most vulnerable to climate change, where insurance can be unaffordable or unavailable. That means more risk managers are recognizing how safeguarding the future of organizations means exploring new solutions for increasingly uninsurable climate-related risks.
Traditional natural catastrophe and climate risk models, which rely on historical data and short-term horizons, may fall short as businesses face increasingly severe and frequent climate events. These events can also trigger secondary perils that amplify the impacts.
Heavy rainfall, for example, may impact soil stability, prompting landslides that prolong business interruptions and cause further damage to critical infrastructure. Traditional modeling might not recognize or quantify such interconnections between primary and secondary events.
By combining robust analytics, the latest catastrophe models and tailored solutions to address your specific challenges and vulnerabilities across longer time horizons, risk managers can understand and manage climate exposures more comprehensively. You can also develop stronger, more resilient insurance strategies.
Solutions tailored to your industry-specific challenges, such as quantifying shared-fate downtime for data centers, or assessing operational risks for global manufacturers, can enable your business to embrace uncertainty.
Getting this right means considering hidden and correlated risks, such as a nat cat event impacting both your site and your utility supplier. Traditional facility-only assessments and planning often overlook these connected risks. For example, many business continuity plans work on the assumption utility providers will restore services quickly, but the same natural disaster impacting your facility can also damage utility providers’ infrastructure.
So, how can you minimize downtime and optimize capital allocation across competing resilience investments to maximize your ROI (return on investment)?
The answers lie in using tailored analytics, engineering insight and data-driven climate adaptation strategies. We recommend carrying out rigorous cost-benefit analysis of structural, operational and procedural enhancements, coupled with robust business continuity planning.
Your organization may need to consider captives to better manage climate-related risks, especially where traditional insurance falls short. That’s because these vehicles let you build up surplus risk finance over time to help pay for the impacts of catastrophic risks such as extreme floods or prolonged droughts. You can use captives to tailor protection, increase risk retention and fill coverage gaps for any emerging or hard-to-insure risks.
Parametric insurance also gives you an alternative approach to risk transfer that can help you recover faster when natural catastrophes strike. Policy triggers are attached to thresholds on a given index being met, such as an amount of rainfall, days without rain or wind speed, rather than there being specific property damage, which an insurer would need to take time to evaluate before settling your claim.
We believe risk management is shifting from its more traditional, reactive, post-loss function to a proactive, advisory role. This is true for both nat cat, climate and wider risks. We encourage risk managers to be part of this shift by prioritizing business continuity planning and proactive risk mitigation. This is about contributing to due diligence and climate resilience assessments during planning and design stages to minimize impact before it occurs and using advanced analytical techniques to optimize insurance strategies and strengthen overall resilience.
By defaulting to an early and more advisory approach, you can guide your organization through complex risks and offer leadership on industry-specific challenges. Risk management can be the business function that prepares the organization to consistently take control of its destiny in the face of climate and hypervolatility, rather than simply responding to losses after they occur.
We’re seeing collaboration driving innovation in risk management in diverse ways, from early engagement to achieve ‘resiliency by design,’ to co-developing datasets, conducting joint research and designing new solutions with partners across the insurance value chain.
We recently worked with Swiss Re Corporate Solutions to develop an innovative parametric policy activated by red weather warnings, bridging the protection gap left by traditional insurance policies. These typically respond to the physical damage impacts of weather events, such as storms and floods, but not the cost of the pre-emptive actions businesses, particularly in the leisure and hospitality industry, need to take after a weather warning has been issued.
We’re also working collaboratively with our clients and their engineering consultants to develop new engineering-based models to better quantify physical damage to specific assets and operational disruptions from key emerging and non-insurable risks, such as heat stress and cold, as well. Furthermore, we are working together to advise on climate-resilient design and strategic site selection.
This collaboration-ready mindset is becoming essential. Joint working will help you develop new models and solutions that can shape the future of risk management and the influence of your role, while ensuring your organization remains well-prepared for whatever comes next.
To find out more about how you can use advanced analytics and scenario testing to address widening protection gaps, get in touch with our specialists.
And read how to take a more strategic role alongside sustainability functions in the climate and sustainability conversation.
WTW hopes you found the general information provided here informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
