As debate continues over declined COVID-19 business interruption claims and the virus exclusion, the role of the insurance industry amid global disasters has come into question. The ubiquity of pandemic risk requires enormous, sometimes unaffordable premium reserves to cover damages, which is why insurers routinely carve it and other all-encompassing events out of coverage. Yet, the industry has not approached climate change with the same vigor. Although wildfires and storms accelerate in frequency and severity, they remain core covered perils. What happens when the scale of damages from climate change surpass that of COVID-19?

The next crisis

The industry is already experiencing the beginning of this disaster. Natural catastrophe losses in 2020 were up 26.5% from 2019, according to Investopedia, and over the last five years nearly doubled those of the prior five. Carbon emissions are creating a weather system fundamentally different from the one in which the insurance industry thrived, yet most insurers still rely on historical data to measure future risk. Among some corners of the industry, there remains an unspoken hope, disguised in the humility of having witnessed many market cycles, that things will either return to normal or that the economy will naturally adapt despite all evidence to the contrary.