Economic Consequences of Natural Disasters

You may not believe in climate change (despite scientific consensus), but your insurance provider sure does. Günther Thallinger of Allianz puts it plainly: if global temperatures rise by 3°C (which is where we’re currently headed) the insurance industry will collapse. “The financial sector as we know it ceases to function. And with it, capitalism as we know it ceases to be viable.” Extreme heat and climate-driven disasters have killed and displaced millions across the globe. This isn’t normal. These events are becoming more unpredictable, more intense and more deadly. Climate change and the destruction of nature are combining to create the perfect storm, fuelling disasters while stripping away our capacity to endure them. Right now, in fact, you are likely reading about a fresh disaster that is ‘unprecedented’. And the financial fallout is mounting. Global insured losses from natural (climate) disasters have averaged about US$100 billion over the past five years (Moody's). And insurance providers are hiking up premiums or, as was the case in California, refusing to issue new home insurance policies due to climate disaster (see State Farm and Allstate). As Günther says, "Heat and water destroy capital. Flooded homes lose value. Overheated cities become uninhabitable. Entire asset classes are degrading in real time." The risk of climate change, he says, has historically been managed by the insurance industry. But we are fast approaching temperature levels "where insurers will no longer be able to offer coverage for many of these risks." Insurers don’t deal in opinion, they deal in data. And the data is clear: climate change and nature decline aren’t up for debate; they’re a reality that you are witnessing. Whether or not you buy the science, the financial consequences are impossible to ignore. Your premiums have already noticed. Thankfully, we already have many of the tools and solutions to address climate change and the destruction of nature. What we don't have? Consistent political will. For Australians wanting to make a difference ahead of the election, Biodiversity Council has created a simple tool to help you contact your local political candidates and call for stronger environmental action: https://lnkd.in/ghAxEv2y They have also identified the key actions we need the next government to take to safeguard and restore the environment: https://lnkd.in/g62uCTfd See Günther Thallinger's post: https://lnkd.in/gahhv6MK See the report by Moody's: https://lnkd.in/ggE_2VCa See the article by The Guardian: https://lnkd.in/gpGBXCRZ

The Swiss Re report on natural catastrophes in 2025 has just been released. 2025 was below the long-term loss trend but not a sign of reduced risk. Here is what the year actually contained: 🔥 USD 40 billion in insured losses from the Los Angeles wildfires alone — the largest wildfire loss event in history ⛈️ USD 51 billion from severe convective storms — the third-costliest year on record for this peril 🌊 USD 11 billion in economic losses from compound monsoon flooding across Southeast Asia 🌍 More than 17,900 people killed or missing from disasters induced by natural hazards Wildfire insured losses are growing at 12% per year. Severe convective storms at 7%. And crucially, in North America for wildfires and in Europe for storms, losses are growing twice as fast as exposure — meaning hazard intensification and vulnerability shifts are adding fuel beyond what simple asset growth can explain. This is not an insurance story. It is a climate and resilience story. The World Meteorological Organization State of the Global Climate 2025 documented that 2025 was the second or third warmest year in the 176-year observational record. Ocean heat content reached a new record high for the ninth consecutive year. Eight of the ten most negative glacier mass balance years since 1950 have occurred since 2016. The Earth's energy imbalance — the fundamental measure of how fast heat is accumulating in the climate system — reached its highest value on record in 2025. The physics of a warming planet shows up in the loss ledgers of the insurance industry with a lag — and that lag is now closing fast. Over 80–90% of catastrophe losses in emerging economies remain uninsured. The communities absorbing the greatest physical risk have the least financial capacity to recover from it. Read the Carbon Brief article: https://lnkd.in/dZNR6E8k Read the WMO State of Global Climate: https://lnkd.in/eEuwv7tV

𝗪𝗵𝘆 𝗲𝗰𝗼𝗻𝗼𝗺𝗶𝘀𝘁𝘀 𝘀𝘆𝘀𝘁𝗲𝗺𝗮𝘁𝗶𝗰𝗮𝗹𝗹𝘆 𝘂𝗻𝗱𝗲𝗿𝗲𝘀𝘁𝗶𝗺𝗮𝘁𝗲 𝗰𝗹𝗶𝗺𝗮𝘁𝗲 𝗿𝗶𝘀𝗸𝘀 A new report (👉https://lnkd.in/eMsCKQuh) exposes a fundamental gap between what climate scientists expect and what economic models predict. 𝗧𝗵𝗲 𝗰𝗼𝗿𝗲 𝗽𝗿𝗼𝗯𝗹𝗲𝗺: 68 climate scientists from 12 countries were surveyed about economic damage estimates. Their insights differ radically from standard models: 🔴 At 3°C warming, experts estimate median GDP damage at ~35%. The Nordhaus DICE model predicts only ~3% 🔴 36% of scientists place the "collapse threshold" 𝘣𝘦𝘭𝘰𝘸 4°C, while many scenarios model up to 4°C and beyond 🔴 250 million people displaced by climate disasters in the past decade, impacts barely visible in GDP figures 𝗪𝗵𝘆 𝘄𝗲 𝗺𝗲𝗮𝘀𝘂𝗿𝗲 𝘄𝗿𝗼𝗻𝗴: We focus on global averages, but people experience 𝘭𝘰𝘤𝘢𝘭 𝘦𝘹𝘵𝘳𝘦𝘮𝘦𝘴: the 2021 Texas storm caused $195 billion damage while barely registering in global temperature statistics. GDP often 𝘳𝘪𝘴𝘦𝘴 after disasters (reconstruction spending) while real wealth declines – the "disaster industrial complex" accounts for 1/3 of US economic activity at 1.4°C warming Models assume smooth damage curves but ignore tipping points, cascades, and system failures 𝗪𝗵𝘆 𝘁𝗵𝗶𝘀 𝗺𝗮𝘁𝘁𝗲𝗿𝘀: This gap determines how pension funds assess risks and how central banks conduct stress tests. The NGFS recently raised damage estimates from 7-14% to 30% GDP loss at 3°C, but climate scientists say even this underestimates. 𝗧𝗵𝗲 𝘂𝗻𝗱𝗲𝗿𝗹𝘆𝗶𝗻𝗴 𝗰𝗮𝘂𝘀𝗲: Research ( 👉 https://lnkd.in/eVsBapbT) shows "disciplinary asymmetries": economists seek optimization within existing systems; natural scientists see limits and tipping points. Where economists use GDP as proxy, scientists see missed impacts on health, ecosystems, and inequality. As a consequence, environmental scientist see degrowth as an option, while economist favour market based solutions 👇 . 𝗪𝗵𝗮𝘁 𝗻𝗼𝘄: The report calls for "recalibration toward precaution, robustness, and transparency": ✓ Report ranges instead of point estimates ✓ Acknowledge where models fail (especially above 2-3°C) ✓ Integrate metrics beyond GDP: mortality, inequality, ecosystem degradation ✓ Model cascades and second-order effects The crucial insight: climate change introduces risks exceeding existing economic frameworks. The response is not waiting for perfect models, but recognizing that avoiding irreversible outcomes is cheaper than pricing them after the fact. For long-term investors: climate risk cannot be fully diversified away. It's a systemic risk requiring fundamentally different strategies. #climaterisk #climateeconomics #systemchange #financialrisk #sustainablefinance

Climate risks could cost companies $1.2 trillion annually by the 2050s 🌎 By the 2050s, annual financial losses from climate physical risks for companies in the S&P Global 1200 are projected to reach $1.2 trillion, assuming no adaptation measures. Extreme heat and water stress are expected to account for the majority of these costs, even under a scenario where global greenhouse gas emissions stabilize and decline after 2050 (SSP2-4.5). Utilities are projected to experience the highest financial burden. The average electric utility in the S&P Global 1200 is expected to face $4.6 billion annually in climate-related costs, nearly five times the average across all sectors. Water stress, essential for power generation, is projected to have a larger financial impact than extreme heat in this sector. Annual financial impacts from climate physical risks are expected to grow over time. Projected costs are estimated at $885 billion in the 2030s, $1.2 trillion in the 2050s, and $1.6 trillion in the 2090s, even with current emissions reduction pathways. These estimates focus on direct impacts to corporate assets and operations and do not include changes in demand or revenue. Despite widespread climate risk assessments in the utilities and energy sectors, financial implications remain underexamined. 94% of electric utilities analyze acute climate risks, while only 62% have identified the potential financial impacts, according to the S&P Global Corporate Sustainability Assessment. Regional differences influence risk exposure. While extreme heat and water stress are the largest global hazards, pluvial flooding poses a higher risk in South Asia and Sub-Saharan Africa, while drought is a greater concern in Latin America, the Caribbean, and the Middle East. Extreme heat is expected to impact companies across all sectors. Worsening heat conditions can reduce labor productivity, increase cooling costs, and disrupt supply chains. Water stress and drought create additional risks, particularly for industries reliant on freshwater resources. The financial impact of specific hazards is expected to increase significantly over time. Coastal flooding costs are projected to rise nearly 14x from $5 billion annually in the 2050s to $71 billion in the 2090s, driven by sea level rise and more frequent extreme weather events. Climate physical risks will continue to escalate in the absence of adaptation. Higher capital expenditures, rising operational costs, and disruptions to business continuity are projected to impose increasing financial burdens on companies in the coming decades. Source: S&P #sustainability #sustainable #business #esg #climatechange #risk

𝐖𝐡𝐚𝐭 𝐡𝐚𝐩𝐩𝐞𝐧𝐬 𝐰𝐡𝐞𝐧 𝐜𝐥𝐢𝐦𝐚𝐭𝐞 𝐚𝐧𝐝 𝐟𝐢𝐧𝐚𝐧𝐜𝐞 𝐜𝐨𝐥𝐥𝐢𝐝𝐞? 🌍💸 In an earlier op-ed, I introduced the idea of a “disorderly transition” — a transition that unfolds not through steady foresight, but through sudden shocks (https://lnkd.in/eYqu_dqF). This new Forbes piece follows that thread further, tracing what happens when environmental stress meets financial fragility — when climate shocks cascade through insurance markets, property values, portfolios, and public finances. Each disruption begins locally — a fire, a flood, a drought — but rarely stays contained. Insurers withdraw, mortgages weaken, assets reprice, governments face fiscal strain. 𝐖𝐡𝐚𝐭 𝐛𝐞𝐠𝐢𝐧𝐬 𝐚𝐬 𝐰𝐞𝐚𝐭𝐡𝐞𝐫 𝐛𝐞𝐜𝐨𝐦𝐞𝐬 𝐟𝐢𝐧𝐚𝐧𝐜𝐞. 𝐀𝐧𝐝 𝐰𝐡𝐚𝐭 𝐛𝐞𝐠𝐢𝐧𝐬 𝐚𝐬 𝐟𝐢𝐧𝐚𝐧𝐜𝐞 𝐛𝐞𝐜𝐨𝐦𝐞𝐬 𝐬𝐨𝐜𝐢𝐚𝐥 𝐬𝐭𝐫𝐞𝐬𝐬. We are already seeing the early signs of this chain reaction. Insurers in high-risk regions are pulling back, premiums are rising sharply, and sectors once viewed as stable — from real estate to utilities — are now exposed to abrupt repricing. 𝐂𝐥𝐢𝐦𝐚𝐭𝐞 𝐫𝐢𝐬𝐤 𝐢𝐬 𝐚𝐜𝐭𝐢𝐧𝐠 𝐚𝐬 𝐚 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐚𝐜𝐜𝐞𝐥𝐞𝐫𝐚𝐧𝐭, 𝐝𝐫𝐚𝐠𝐠𝐢𝐧𝐠 𝐭𝐨𝐦𝐨𝐫𝐫𝐨𝐰’𝐬 𝐯𝐮𝐥𝐧𝐞𝐫𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬 𝐢𝐧𝐭𝐨 𝐭𝐨𝐝𝐚𝐲’𝐬 𝐦𝐚𝐫𝐤𝐞𝐭𝐬 𝐚𝐧𝐝 𝐛𝐚𝐥𝐚𝐧𝐜𝐞 𝐬𝐡𝐞𝐞𝐭𝐬. An orderly transition depends on credible signals and gradual shifts of capital. A disorderly transition begins when those signals falter — when systems absorb pressure faster than they can adapt. ⚡ For leaders, the strategic question is not whether the transition will happen, but how to navigate its speed and instability. Resilience now means designing markets and institutions capable of absorbing shocks — before fragility dictates the terms of change. Ultimately, the “disorderly transition” is more than a description of risk; it’s a lens on system design. 𝐂𝐚𝐧 𝐰𝐞 𝐚𝐥𝐢𝐠𝐧 𝐜𝐥𝐢𝐦𝐚𝐭𝐞 𝐟𝐨𝐫𝐞𝐬𝐢𝐠𝐡𝐭 𝐚𝐧𝐝 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐬𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐛𝐞𝐟𝐨𝐫𝐞 𝐜𝐫𝐢𝐬𝐢𝐬 𝐟𝐨𝐫𝐜𝐞𝐬 𝐭𝐡𝐞 𝐚𝐥𝐢𝐠𝐧𝐦𝐞𝐧𝐭 𝐟𝐨𝐫 𝐮𝐬? 🌱 👉 Read the new Forbes op-ed here: https://lnkd.in/eP8TUguU #Sustainability #ClimateFinance #SystemicRisk #Resilience London Business School Jo Luzmore Christopher Moseley, MCIPR Felicity Glennie Holmes Christopher Caldwell John Elkington Louise Kjellerup Roper Scott Newton Andrew Winston Nawar Alsaadi, FSA, SIPC Sasja Beslik Dr Ahmed Shawky Tina Mavraki CFA Georg Kell Sam Baker Pascual Berrone Donato Calace Marjella Lecourt-Alma Carolina Minio-Paluello, PhD Cristian CITU Daniel Aronson Gillian Marcelle, PhD Stern Strategy Group Rachael De Renzy Channer Marcin Kacperczyk Emilio Marti Leandro Nardi Rodolphe Durand

Seven dominoes. One economy. Here's how they fall. We just mapped the seven channels of demand destruction now threatening U.S. growth. The core insight most people are missing: it's not any single shock that breaks the economy — it's the compounding. These channels fire in sequence, fast ones first, slow ones piling on — and if the disruption lasts long enough, they all reinforce each other: ⛽ Purchasing power drain — gas prices act like a tax on every household 📉 Confidence collapse — consumers see rising costs and pull back 🏠 Big-ticket freeze — auto and home sales stall 🏭 Business investment retreat — diesel above $5/gal raises the cost of moving everything 🏦 Fed policy paralysis — the classic stagflation trap with no clean answer 🔄 Permanent behavioral shifts — people switch to EVs, lock in remote work. That demand doesn't come back. 🌍 Commodity spillovers — the one standard models miss. Hormuz isn't just oil. It's 20% of global LNG, 30%+ of fertilizer, half the world's sulfur, and critical helium for chips. Food, tech, and industrial chains are all hit at once. Any one channel creates drag. All seven firing simultaneously creates a negative feedback loop that can tip the economy from a bad quarter into a recession. And here's the kicker: even after the strait reopens, physical damage to refineries, gas plants, and fertilizer facilities could keep costs elevated well into 2027. There are real buffers — better energy efficiency, EV adoption, WFH, net oil production. But none have been tested against a disruption this large hitting this many commodities at once. Time is not an ally of the American economy right now. Full analysis: https://lnkd.in/e5iWgccA

I am happy to co-author this article with Beatrice WEDER DI MAURO, President of the CEPR - Centre for Economic Policy Research, reflecting on the urgent need to engage in collective thinking and action to adapt our response to the challenge of insurability in the face of escalating climate risks. This article, which captures key convictions from our joint workshop hosted at Collège de France by the AXA Research Fund and CEPR - Centre for Economic Policy Research, couldn't have been more timely.   Devastating floods in Valencia, the wildfires in Los Angeles, the typhoons in Mayotte and La Réunion... These recent climate catastrophes show a clear reality: climate risks are intensifying and the protection gap for local communities and economies are becoming evident. Global economic losses from extreme weather events reached $320 billion in 2024, while in Europe, only 25% of economic losses were insured - leaving individuals, businesses, and communities vulnerable.    To address this, we need to enhance risk-sharing mechanisms and promote partnerships between public institutions and private companies.   Ensuring insurance accessibility and effectiveness is crucial. This can be done through: ➡️ Hybrid models, combining market mechanisms with public-private partnerships, to help ensure broad coverage and affordability. France’s CatNat regime and Switzerland’s hybrid model offer valuable insights. These models can be adapted to regions facing extreme exposure, such as sea level risks. ➡️ Greater investment in prevention and risk-sharing mechanisms. Initiatives like local municipal risk assessments can help small municipalities assess and mitigate local climate risks. ➡️ Impact underwriting, where insurers incentivize policyholders to adopt risk-reducing measures in exchange for lower premiums. ➡️ Public education on climate risks and stronger coordination between insurers, governments, and consumers to ensure preventive measures are taken seriously.   As we move forward, it's clear that policymakers, insurers, and society must work together to strike a sustainable balance between affordability and fiscal viability. This is not just about who pays the bill. It is about how we manage risk in an increasingly uncertain climate landscape. Let's continue to foster collaboration and innovation to close the protection gap and build a resilient future. 👇 https://lnkd.in/er6BkrtZ

Storm Chandra hit the UK on 27 January. Within hours, the M48 Severn Bridge closed. Over 130 flood warnings were activated across England. Commuters, hauliers and supply chains were rerouted or stopped entirely on ground already saturated by two named storms in the same month. This wasn't a freak event. It was a preview. Yesterday's Financial Times analysis has mapped the roads that keep the UK economy moving, and what it found should concern every business leader, investor and policymaker in the country. Almost one in three of the main roads into Greater London is at risk from river flooding, four in ten in Birmingham, and more than half in Greater Manchester. The M6. The M62. The M5. Already closing during extreme rainfall. When they go down, the consequences don't stay local: → Workers can't get to work → Supply chains stall → Businesses lose revenue → Emergency repair costs escalate. And it's not just roads. Around 1,000 electricity substations are located in flood-risk zones, exposing homes, businesses, hospitals and transport networks to simultaneous disruption. Here's what makes this structural, not cyclical: Extreme winter rainfall in the UK has increased fivefold since 2010. The climate these assets were built for no longer exists. Warmer air holds more moisture, resulting in heavier downpours. Degraded landscapes mean faster runoff and less time to respond. The Environment Agency now estimates that nearly four in ten English roads are in areas at risk from flooding. With climate projections applied, that rises to nearly half by mid-century. This is now a national economic resilience problem hiding in plain sight. Natural flood management, restored catchments, smarter infrastructure. These aren't green add-ons. They're the economic infrastructure of the next decade. Every pound spent on flood protection avoids an estimated £5 in damages. The question for government and long-term investors isn't whether we can afford to act. The UK economy runs on infrastructure built for a climate that no longer exists. FT article linked below: The English roads at risk of being underwater https://lnkd.in/exv7mDhq

Very sobering report on the effects of climate on the global economy. We need dramatic and immediate emission reductions now. “But today's report takes a much more granular and empirical approach. It assesses the actual fallout from climate-related impacts on economic growth in over 1,600 subnational regions worldwide over the past 40 years, and then marries that analysis with the latest state of the art climate impact projections through to 2050.… The headline conclusion is that under a central scenario the global economy could face $38tr a year of climate damages a year by 2050, which would knock 19 per cent off projected per capita incomes. Such impacts are likely to already be locked in, even if the world now moves quickly to curb greenhouse gas emissions. Under worse case scenarios, climate damages could reach $59tr in 2050 and incomes could be 60 per cent lower than expected…. The overarching conclusion from the report is that, in the words of Wenz, "protecting our climate is much cheaper than not doing so, and that is without even considering non-economic impacts such as loss of life or biodiversity… The analysis also comes in a week when the way in which climate-related economic impacts could play out have been made painfully apparent. Dubai is starting to clean up after the worst floods in 75 years, after the city faced more rain in 24 hours than it usually received in a year and a half. A report from the Association of British Insurers confirmed the UK faced record levels of weather-related claims last year. And farmers in the UK and across much of Europe are warning they are set to endure one of the worst harvests in modern times due to extreme weather.” https://lnkd.in/eWu3b-Ru

Important new paper – Climate extremes, food price spikes, and their wider societal risks Maximilian Kotz Markus Donat Tom Lancaster Miles Parker Pete Smith Anna Taylor Sylvia Vetter “2024 was the hottest year on record, with global temperatures exceeding 1.5 ◦C above preindustrial #climate conditions for the first time and records broken across large parts of Earth’s surface. Among the widespread impacts of exceptional #heat, rising #food prices are beginning to play a prominent role in public perception, now the second most frequently cited impact of #climatechange experienced globally, following only extreme heat itself. Recent econometric analysis confirms that abnormally high temperatures directly cause higher food prices,as impacts on agricultural production translate into supply shortages and food price #inflation. These analyses track changes in overall price aggregates which are typically slow-moving, but specific food goods can also experience much stronger short-term price spikes in response to #extremeheat. In this perspective, we document numerous examples from recent years in which food prices of specific goods spiked in response to #heat, #drought and heavy precipitation extremes. By evaluating the extremity of the associated climate conditions, we thereby build a global and climatological context for this phenomenon. We further review the knock-on societal #risks which these effects may bring with the ongoing intensification of extremes under climate change. These range from increasing economic #inequality and the burden on #health systems, as well as destabilising monetary and political systems. We discuss challenges and priorities for research and #policy to address these risks.” Maximilian Kotz et al 2025 Environ. Res. Lett. 20 081001. DOI 10.1088/1748-9326/ade45f Read more here: https://lnkd.in/eC4-B7pz