Why insurers worry the world could soon become uninsurable

• Some fear the world is fast approaching temperature levels where professional risk managers will no longer be able to offer cover for financial services
• Günther Thallinger, a board member at Allianz, one of the world’s biggest insurers, says the climate crisis could make adaptation economically unviable  
• Zurich Insurance Group, meanwhile, said alongside a recent research paper assessing climate resilience that the outlook looks “alarmingly bleak”

Top insurers fear the climate crisis could soon outpace industry solutions, effectively threatening to make entire regions around the world uninsurable.

Günther Thallinger, a board member at Allianz, one of the world’s biggest insurers, recently outlined how the world is fast approaching temperature levels where insurers will no longer be able to offer cover for financial services, such as mortgages and investments.

In practice, this scenario implies some may face difficulty being able to afford home insurance cover, which is typically a prerequisite for getting a mortgage.

In a LinkedIn post published in late March, Thallinger made the case for rapid decarbonization, pointing out that entire asset classes were “degrading in real time” as extreme weather events take their toll. Perhaps most strikingly of all, he warned the worsening climate crisis appears to be on track to destroy capitalism.

Insurance, which is regarded as the invisible lubricant of the global economy, has a unique role to play in addressing climate-related risks. As professional risk managers, insurers routinely allow investors to take on calculated risks, protecting individuals and businesses against financial losses.

Thallinger, who is responsible for investment management and sustainability at Allianz, told CNBC that approximately two-thirds of economic losses from natural catastrophes are currently uninsured, indicating a “major societal problem.”

The so-called protection gap means that the financial burden of these disasters often falls on individuals, businesses and governments, rather than insurance firms.  “If this volume just grows even more, we simply have a societal situation that is not bearable anymore because it is just too much risk that is no longer covered,” Thallinger told CNBC by video call.

 “The logic is not ours or mine. No, absolutely not. There are many people who are actually talking about how you cannot insure certain assets. It’s very, very difficult to deal with these assets as an investor.”

 ‘Alarmingly bleak’

The warning comes at a time when the world is on course for a temperature increase of as much as 2.6-3.1 degrees Celsius this century, according to the United Nations, a level that would trigger “catastrophic” consequences for the planet.

Scientists have repeatedly warned that global average temperatures must be kept below 1.5 degrees Celsius to avoid the worst of what the climate crisis has in store.

This threshold is recognised as a crucial long-term target because so-called tipping points become more likely beyond this level. Tipping points can lead to dramatic shifts or potentially irreversible changes to some of Earth’s largest systems.

 “We can really talk about adaptation. How to build our infrastructure, our houses, our streets, our pipelines, our grids in such a way that they can withstand certain forms of weather phenomena. This is something that we can do with a very, very easy economic case behind it,” Thallinger said.

Allianz estimates that the cost of economic losses from natural catastrophes is typically around 10 times higher than the cost of adaptation, noting that this provides a clear economic incentive for policymakers to invest in preventative measures.

 “If we continue, however, with the policies that we have out there, we are clearly on a pathway now of 2.7 degrees or 3 degrees where adaptation is simply not doable anymore. This is just what it is. We cannot protect Amsterdam from sea level rise of three meters. This is just not doable,” Thallinger said.

It’s not just Allianz’s Thallinger fearing the worst. Zurich Insurance Group, Europe’s fifth-largest insurer, said in April alongside a research paper assessing climate resilience that the outlook looks “alarmingly bleak.”

The Swiss insurer cited the Los Angeles wildfires at the start of the year as a stark reminder that even the world’s wealthiest economies are unprepared for the impact of increasing climate risks.

Zurich also found that global insured losses have grown at a much faster rate than the global economy over the past three decades.