Canaries and coal mines, US insurers and climate change

This behavior by the better-managed property insurers is nothing new. Savvy property insurers have been “minding” aggregate catastrophe exposures for decades, particularly since Hurricane Andrew in 1992. Today, predictive and post-mortem hurricane and wildfire modeling supports much more sophisticated analyses of potential and recent natural catastrophes.

As the earth’s atmosphere and seas continue to warm, as severe convective storms increase in frequency and intensity, and as the annual costs of repairing damage caused by various natural catastrophes continues to rise, property insurers have no obvious alternative but to remain on high alert. Among other recent statistics, the Financial Times reported that sea surface temperatures on a global basis were only marginally below the 2023 record readings, with regional records continuing to be set this year in the central Gulf of Mexico and in the Mediterranean. According to Bloomberg, the United States has incurred approximately $1 trillion in property damages in the last 12 months.

While I may have missed reports of insurance and reinsurance executives dismissing climate change science and throwing away their hurricane and wildfire risk models, property-insurance companies simply do not have the luxury – from a solvency perspective – of ignoring science and the output of risk models. Neither do state insurance regulators.

As national property insurance availability and affordability concerns increased last year after Hurricanes Helene and Milton, and again this year following the Los Angeles wildfires, state regulators and legislators have exhibited growing interest in the catastrophe risk models (or “cat models”) used by the industry, with particular respect to wildfires. To the extent that policymakers continue to act on the basis that reinsurance pricing, terms, and conditions are primary factors driving the behavior of primary carriers, expect continued interest in understanding how such models work and how accurate they are.

We can also expect more states to join Florida in creating and maintaining public cat models, most likely to support regulators as they, in turn, require insurers to submit cat models for review prior to use. Additionally, we can expect better-informed state regulators to understand that reinsurers and capital markets investors who are taking on increasing natural catastrophe, or “nat cat” exposure, are critical to distributing risk and to paying meaningful portions of America’s natural catastrophe losses. (See, for example, this year’s Florida Citizens Property Insurance Corporation reinsurance tower, 70% of which is now sourced from the global cat bond market).

Since May 2025, rating agencies (e.g., Fitch) and property market analysts such as Cotality (formerly CoreLogic) have been calling attention to the impacts that physical risks from various weather events thought to have been influenced by climate change are having or will be having on asset prices. As Cotality’s May 29 report entitled “Hurricane Risk 2025: Outpriced and Underwater” put it, “It’s reshaping who can buy, who can sell, and who gets left behind.” In mid-May, Bloomberg published a report (“Florida’s Housing Market Softens as Climate-Related Costs Mount”) that noted falling residential property pricing. While the report acknowledged that 2024 residential property insurance pricing in Florida had not increased for the first time in multiple years, it mentioned that “terms and conditions” of residential homeowner policies (e.g., deductibles) were changing and leaving homeowners (particularly those on fixed incomes) even more exposed to weather-related financial risks.

Today, two big questions face US property insurers (and the industry as a whole): Should insurers play a role beyond identifying and assessing climate financial risk? If so, can insurers play a meaningful part in financing climate change adaptation projects that a warming climate and rising sea levels will inevitably require?

From a political perspective, of course, climate change as a concept has morphed from received wisdom during the Biden administration to anathema in these first six months of the second Trump administration. In addition to the many well-reported casualties of this paradigm shift – ranging from environmental safeguards to energy policies – climate-related financial risk disclosure requirements at the US federal level have similarly all but bitten the dust.

The next section of this piece summarizes what remains of climate financial risk disclosure requirements, globally and within the US. In the final section, we will look at the roles of property insurers and the industry in general in the years ahead, taking into account global energy supply and demand trends.

Remaining climate financial risk disclosure regulations

International

At the international level (within the Basel Committee on Banking Supervision (BCBS)), bank regulators continue to debate the direction of policy with respect to climate-related financial risks. In mid-June 2025, the BCBS published a “voluntary framework for the disclosure of climate-related financial risks includ[ing] both qualitative and quantitative information. The [BCBS] has agreed this framework will be voluntary in nature, with jurisdictions to consider whether to implement it domestically.” Based on reports in early July, the European Central Bank appears to have decided to continue to stay the course on better understanding how climate change impacts economic risks and, therefore, monetary policy.

Separately, in late June 2025, the International Association of Insurance Supervisors (IAIS) published a 19-page mid-year Global Insurance Market Report (GIMAR) focusing on topics such as “geoeconomic fragmentation” on asset valuations, insurers’ increasing investments in private credit vehicles, and insurers’ adoption and governance of artificial intelligence (AI). At the end of the report, the IAIS added that the year-end GIMAR would include a discussion of climate-related risk, noting that, in April 2025, the IAIS published an application paper on supervision of climate-related risks. In the paper, IAIS addressed a laundry list of topics ranging from insurer governance and risk management, to asset and liability valuations, to enterprise risk management. (It is worth noting that some of these topics are very unlikely to be pursued by state insurance regulators at the US National Association of Insurance Commissioners (NAIC) level, although state-level adoption by “blue state” regulators is possible.)

US federal government

Beginning with the first executive orders of the Trump presidency, the federal government’s retreat from considering climate change as a factor in anything – including its role in creating financial risks for consumers, property owners, companies, or government entities – has accelerated. In recent months, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and other agencies have variously eliminated internal working groups, terminated efforts to integrate climate financial risk analysis into their regulatory frameworks, and/or ended employment of those in charge of these activities during the Biden administration. Federal Reserve Chair Jerome Powell was quoted in May 2025: “You heard me say over and over again that we will not be climate policymakers …. [o]ur role on climate is a very, very narrow one.”

As has been well reported elsewhere, the US Securities and Exchange Commission also has all but formally abandoned its efforts to craft climate financial risk disclosure regulations for publicly traded companies. We also understand that the Financial Stability Oversight Council (FSOC) is no longer interested in considering climate risk as a threat to the stability of financial markets. It is interesting to note, however, that the US Department of the Treasury’s website continues to make available FSOC’s comprehensive October 2021 report on climate-related financial risks.

Looking ahead at federal/state government interactions, will we see any attempts by the Trump administration to challenge individual state climate-related risk efforts pursuant to the April 2025 executive order directing the US attorney general to identify all state and local laws addressing climate issues, including environmental, social, and governance (ESG) initiatives and carbon emissions? Will the Trump administration seek to force state insurance regulators to cease requiring insurers to submit climate financial risk disclosures (see below)?

These are wild cards that may come into play depending upon policy judgments by the Trump administration and the availability of federal legal resources. The reaction of blue states to such federal challenges also will play a role. It is entirely possible that blue-state attorneys general will launch a full-court press, with multiple states filing suits to oppose federal challenges to policymaking (i.e., using litigation strategies akin to the Trump administration’s “flooding the zone” approach).

NAIC: Task Force for Climate-Related Financial Disclosures (TCFD)-aligned climate financial risk disclosure survives

While it is difficult to find an authoritative count of the number of states that require their domestic insurers to submit an annual climate financial risk disclosure report to the NAIC, it is believed that fewer than half require such filings. This number is unlikely to increase in the US’s current political environment, as it has become simply too difficult to bridge the climate-change divide between red and blue states.

At the NAIC level, there has been some recent rhetoric around loss mitigation and resiliency efforts, which are essentially nonpartisan issues. Additionally, deep cuts by the Trump administration to the Federal Emergency Management Administration’s budgets for disaster recovery and risk mitigation projects may have the effect of changing views among some red state legislators and regulators.

Having said this, states that have been staunch proponents of increased climate financial risk disclosure for insurers have a variety of supervisory tools in their toolboxes. Whether targeting climate risk across an insurer’s investment portfolio in the context of a periodic financial examination; reviewing property insurers’ monitoring and management of catastrophe exposures (including cat reinsurance programs; see California Senate Bill (SB) 495); or during market-conduct examinations into insurers’ handling of catastrophic event losses and claims, state regulators (if so inclined) have many pathways to explore insurers’ climate-related financial risks.

California

California continues to develop a range of climate-change-related measures, including requirements for certain US companies “doing business in” California and with more than $1 billion in annual revenues to disclose greenhouse gas emissions (Scopes 1, 2, and 3); and the requirement that companies with more than $500 million in annual revenues (insurers excluded) file climate financial risk disclosures in line with the reporting template developed by the TCFD. The California Air Resources Board (CARB) expects to release final implementing regulations by the end of 2025. The laws themselves remain under challenge in the courts, principally on First Amendment grounds. We shall see whether the US attorney general challenges California’s climate-related disclosures.

Insurers and reinsurers also are monitoring the progress of the proposed Insurance and Climate Risk Market Intelligence Act (SB 495), backed by Insurance Commissioner Ricardo Lara and by consumer advocates. If enacted and signed into law by Governor Gavin Newsom, the legislation would require certain California insurers and groups of insurers writing property lines of coverage to report annually – on a confidential basis – about their property reinsurance programs and use of probabilistic wildfire cat models. (Compare this with Colorado’s recent legislative activity (House Bill 1182) on this same topic.) The California bill would also make several consumer-friendly changes to claims handling and claims payment requirements when catastrophes occur (e.g., minimum payouts without the need for insureds to supply detailed inventories of personal property).

Texas

As a “red state” counterpoint to “blue state” California, consider that the Texas Legislature almost succeeded in passing two climate-related bills this year. The Texas Senate passed both bills, but each died in the House (note that Texas’ legislature meets every two years):

• SB 495, if enacted, would have prohibited Texas insurance regulators from requiring Texas-domiciled insurers from complying with any rule, rating, or standard – including an accounting standard – adopted by interstate (i.e., the NAIC), national, or international bodies that measures defined ESG assessments. The bill also would have permitted any person to file a declaratory judgment action seeking to invalidate any such rule or standard.
• SB 945, if enacted, would have prohibited Texas-domiciled insurers from including in a proxy statement or implementing any “political shareholder proposals.” Such proposals were defined in the bill as those that directly or indirectly:
  • Prohibit or limit insurers from insuring risks “related to the exploration, production, utilization, transportation, sale or manufacturing” of fossil fuel-based energy.
  • Require insurers to reduce or track greenhouse gas emissions (GHGs), whether Scope 1, 2, or 3.
  • Prohibit or limit an insurer’s ability to insure any entity involved in legal activities “for the purpose of achieving environmental, social or political ends.”

Where to next?

To begin to answer this, it helps to consider, at least at a high level, the kind of environment in which insurance executives, public policymakers, and regulators might be operating in in the coming years (putting aside, of course, the unknowns of political and geoeconomic “shifting winds” and “forces at work”).

In “The Troubled Energy Transition,” an article published in the March – April 2025 edition of Foreign Affairs, the authors argue that the transition from carbon-based energy sources to renewables will be “much more difficult, costly, and complicated” than many have thought. Rather than “transition,” development and use of renewable energy sources will add to oil, gas, and coal consumption on a global basis. Developing economies that are still reliant, in large part, on biomass energy sources will first carbonize (most likely by using natural gas) before starting to decarbonize. India, for example, still relies on coal for 75% of its electricity generation needs.

Indeed, in the developed world and despite recent announcements and forecasts of the increasing use of nuclear power to meet skyrocketing energy demands of data centers and the AI economy (see the International Energy Agency forecasts that data centers’ electricity consumption will double, to 945 terawatt hours by 2030 – more power than Japan uses today), Congress and the Trump administration have clearly charted a policy path that disfavors nonpolluting renewable sources and doubles down on the use of fossil fuels, including natural gas, coal, and oil. The authors assess that oil consumption looks set to increase until plateauing sometime in the 2030s and that natural gas consumption will increase until well into the 2040s. The authors further contend that Paris Agreement targets for global warming or achieving “net zero emissions” by mid-century are likely significantly off-base and conclude that “[w]hat is becoming clear is that the shift in the global energy system will not unfold in a linear or steady manner. Rather, it will be multidimensional – unfolding differently in different parts of the world, at different rates, with different mixes of fuels and technologies, subject to competing priorities and shaped by governments and companies establishing their own paths.”

Assuming the authors’ judgment is directionally correct, where does this leave insurers that have committed or are considering commitments not to insure, or to reduce capacity to insure, industries and companies that extract, make, transport, or use coal, oil, and gas? What about energy-intensive mining projects that will be required to satisfy global demand for “clean energy” technologies? If the authors are correct in their pragmatic view of the energy world, insurers (and the rest of us) are going to need to come to grips with a world in which, for decades to come, production and consumption of energy derived both from conventional carbon-based energy sources and from renewable sources (or at least those, such as nuclear, that do not emit GHGs) are either reaching new highs or not declining by much.

Assuming global warming and sea levels continue to rise in coming decades – as destructive weather events become more frequent and more intense – global property insurance markets will continue to be stressed. Insurers that cut back or withdraw capacity from certain geographies in the face of a riskier environment will be applauded by some (shareholders and mutual policyholders) but will be criticized by many others. Longer term, societies and governments will presumably decide to spend eye-watering amounts annually to adapt to changing conditions ($6.3 to $6.7 trillion per year by 2030 and up to $8 trillion per year by 2035 according to a United Nations estimate) – and thus, presumably and over time, will reduce climate change risks, thereby fostering increases in insurance capacity commitments.

Can insurers contribute meaningfully to the huge investments needed to address climate adaptation projects? Bear in mind that governments around the world – both in developed economies but particularly many low-income countries –are currently experiencing varying “debt distressed” conditions. Considering the sums of money needed to finance climate adaptation versus aggregate insurer assets (some of which must be held to be invested to pay for “routine” losses and loss expenses) available to invest in climate adaptation projects, it seems unlikely that insurers globally (at least property insurers) will play a significant role. Larger life insurers may be meaningful financial support sources for adaptation projects, but their increasing reliance on income from private credit investments should elicit close analysis of the climate financial risk posed by those borrowers. Regardless, the leading adaptation investment roles likely will fall instead to governments and, assuming there are market incentives for private investors to decide to finance meaningful amounts of “transition-friendly” adaptation investments, those institutions with the largest amounts of assets under management.

Insurer-company management will be tested in the next few decades. Companies will be required to navigate climate/weather changes caused by a rapidly warming world and major changes in energy markets, managing both the liability and asset sides of balance sheets. When you factor in in the uncertainties of more frequent and faster changes in political and regulatory policies, it is clear tomorrow’s environment will be challenging for insurers.