Climate Perils Persist
Only taking action to slow climate change will reduce losses from natural catastrophes.
Underlying the remarkable growth of the catastrophe bond market in recent years is the same threat that gave rise to its arrival—unrelentingly fierce natural disasters.
In 2024 alone, 27 weather/climate events in the United States topped $1 billion in cost.
Worldwide, the frequency and severity of hurricanes, tornadoes, wildfires, severe convective storms, and other weather-related disasters resulted in $368 billion in economic losses that year. Had not capital market investors absorbed some costs of the most devastating catastrophes, global reinsurers would have struggled further to provide much-needed risk-bearing capacity to primary insurers. Unable to adequately spread the risk of loss in disaster-prone regions, prices for homeowners and business insurance would be far higher than they are today.
To grasp what lies ahead for the industry if devastating weather/climate events become more persistent, Leader’s Edge spoke with Scott St. George, head of weather and climate research at WTW. A physical scientist with a Ph.D. in geosciences from the University of Arizona, St. George models weather-related exposures for the insurance brokerage’s clients. As he wrote in the March 2025 issue of Nature, “Climate scientists are being drawn into the industry to model these risks. I’m one of them.”
The following Q&A has been edited for concision and clarity.
Q
Let’s cut right to the chase. How bad is the weather and is it getting worse?
A
Certainly, the baseline for natural catastrophes has gone up recently. It wasn’t long ago in the 2010s when there would be a couple major loss years and then the insurance industry would get a break, with some moderate losses. In the current decade, every year is a high-loss year.
Q
Aside from inflation, what are the reasons?
A
There are two main ones. First, the exposure has gone up in places like Minnesota, where people live in fear of hailstorms. Most people think hurricanes are the big cost driver in insurance. Wrong. It’s hailstorms, and we think they may get even more severe in a warmer world. The key words there are “think” and “may.” What we do know is the more stuff like houses, cars, and other possessions you put in the way of hail, the bigger the insured loss. A hailstorm passes over Minneapolis and the price tag is $2 billion.
Q
What’s the second reason?
A
Climate change. Most climate scientists predict that storms, wildfires, and floods will worsen with climate change. And when it is bad, it’s really bad. Most of the time, your house doesn’t burn down or get torn apart by a tornado or a hurricane. Most of the time the losses are fairly small. The tricky dimension is when you’re dealing with circumstances you haven’t seen before historically. It’s hard to establish the upper limit of how big insured losses can get, to put odds on something that hasn’t happened in a hundred years or two hundred. We climate scientists have to be cautious and humble.
Q
In your article in Nature on the intersection of homeowners insurance and climate change, you write that simply “ratcheting up insurance premiums to keep up with mounting losses from hurricanes, wildfires and other perils might make financial sense, but is indicative of a crisis facing the insurance industry.” My reading of your comment is that insurers will reach a point of no return, where prices are so high and yet the industry is still losing money.
A
That’s correct. And we’re already seeing that in places like California, where many homeowners insurers have decided not to continue throwing good money after bad. Instead, they’ve pulled up stakes and withdrawn their coverage.
Q
That’s a good segue to discuss cat bonds. Investors have done exceedingly well in recent years, hitting record territory in 2023, when returns were up an average 19.69%. Last year, the average return was 17.29%, still pretty terrific. As a sort of oddsmaker, do you think their luck is about to turn?
A
That’s a tough question. Climate scientists are good at saying there could be a lot of big storms coming up, but we’re not good at predicting where they will occur. The cat bond market may be dancing between the raindrops and not getting wet, the storms happening in places where the impact on the insurance industry is not that big.
Last year, for instance, every forecasting group under the sun was projecting there would be a lot of hurricanes in the North Atlantic, since the ocean was so hot. We did see Hurricane Milton, which was quite bad, but it missed Tampa. Hurricane Helene did so much damage in the Carolinas, but the impact on the industry was relatively modest (an estimated $10.5 billion to $17.5 billion in insured losses). The reason is that most people in that part of the country don’t have flood insurance.
Q
What is your biggest worry about the weather in the future?
A
I worry about the climate changing more quickly in more unpredictable ways, like sea levels rising on the Gulf Coast and wildfires in the American West and Western Canada. Different perils behave in different ways. When insurers try to understand the direction of these perils in the future, they worry about expensive hurricanes. But the truth of the matter is you can get lucky with a 10- or 15-year lull. Flooding in Galveston and other coastal areas, where the sea levels are higher than 20 years ago, that’s what I worry about. You don’t even need a rainstorm, just high water pushing into the city.
Q
I especially liked your comments in the article about global warming. While you applaud risk mitigations like impact-resistant, fire-resistant roofs that yield insurance premium discounts in some states, you stated that they “treat the symptom, not the disease.”
A
Those actions and others like them are all good things to do. But the climate is just going to get worse. Ultimately, we need to prevent further increases in global temperatures. Only that will bring the incidence and cost of catastrophes down. Otherwise, insurers will reach that breaking point, pricing more people out of coverage.
