Reflets Magazine #157 | “The Cost of Weather-Related Claims is Set to Double”

As the climate changes, so does the insurance industry. How can this be managed? Reflets Mag #157 presents the different perspectives of Élise Ginioux (E06), Director of Marketing, Communications, Sustainability and Public Affairs at Generali France, and Jean-Noël Felli (E89), a partner in the Colombus Group specialising in support for senior executives in the insurance sector. You have special free access to this article... don’t forget to subscribe! 

Reflets Magazine: What is the impact of rising environmental risks on the insurance sector? 

Élise Ginioux: With the cost of weather-related claims rising to €6.5 billion, 2023 was the third costliest year in history for insurers, confirming a change of scale in the upward trend we have been witnessing for the past 40 years. Between 1984 and 2024, the cumulative cost of climate damage exceeded the symbolic €100 billion mark. And forecasts for the next 30 years predict this to double compared with the 1990-2010 period, with average annual costs of €4.7 billion compared with €2 billion at present.

Jean-Noël Felli: According to the Caisse Centrale de Réassurance (CCR), the claims rate is set to rise by around 40% between now and 2050. And, according to France Assureurs, “natural events” claims could reach a total of €143 billion between 2020 and 2050, an increase of 93% compared with the previous period. So it's easy to understand why, according to an Elabe survey, 48% of French people think that we will no longer be able to insure ourselves in the future.

É. Ginioux: It has to be said that France is on the front line of climate change. In particular, the unique configuration of mainland France with four seaboards means that it is highly exposed to the North Atlantic jet stream and the storms that come with it. And let's not forget the overseas territories, which are particularly vulnerable.

J.-N. Felli: Take the swelling of clay soils as an example: exacerbated by intensified droughts, this phenomenon threatens more than 10 million single-family homes across the country. Based on an average cost of €40,000 per home, the total bill could reach €500 billion over the next 20 years.

É. Ginioux: And even then, all these figures only account for property damage. There are also health costs, which remain poorly assessed. Yet they represent a considerable burden. Think of the waves of deaths linked to heatwaves, as in 2003, or the illnesses caused by pollution: asthma, bronchial irritation, diabetes, and heart attacks, which increase by 28% in environments with high concentrations of nitrogen dioxide.

J.-N. Felli: 10 years ago, at COP 21, Henri de Castries (former CEO of AXA) warned that a world at +4°C would be uninsurable. We're getting closer.

RM: How are players in the sector responding to these challenges? 

J.-N. Felli: In terms of investment, insurers are withdrawing from fossil fuels and focusing on projects that support the ecological transition: renewable energies, sustainable infrastructure, etc. In all, their “green” assets have risen from €50 billion to over €150 billion in five years. In this area, we should also commend MAIF's climate dividend, through which it has committed to allocating 10% of its annual profits to climate solidarity and biodiversity regeneration projects. Regarding the range of products, insurers are developing new offerings focused on eco-responsibility: insurance specifically for electric vehicles, home insurance that encourages energy renovation, bonuses for eco-friendly behaviour (soft mobility, responsible consumption, etc.) and crop insurance for farmers, where farmers retain a deductible (25%), insurers cover 50 to 70% of losses beyond that, and the public authorities provide the rest. Finally, another major trend: prevention is becoming key, both in terms of services and underwriting conditions.

É. Ginioux: While our sector has long relied on past statistics to assess future claims, we are now moving from risk management to proactive prevention. Property owners are particularly concerned: at Generali, no fewer than 285,000 people used the "Ensemble Face aux Risques" tool in 2024 to assess the threats to their home and find out how to anticipate and mitigate them. This type of process will gradually become a prerequisite in terms of insurability. Another aspect of this approach is that we are committed to improving scientific understanding of the risks involved, so that we can develop decision-making tools, warning systems and local adaptation strategies. For example, we have been helping fund CNRS research into fine atmospheric particles for the last 10 years. We are also partners of the Ballon Generali de Paris, a tool for studying air quality, and we run the Climate Lab, a consortium of geomaticians, geographers, climatologists, hydrologists, data scientists and actuaries specialising in climate modelling.

RM: How are French public authorities responding to the impact of environmental issues on the insurance sector? 

É. Ginioux: Only a collective effort, involving the national government, local authorities and regional players, will provide lasting and effective solutions. Public-private partnerships need to be strengthened, not only to anticipate and mitigate the impact of natural disasters, but also to guarantee a rapid and coordinated response to disaster victims, and to provide equitable protection for all citizens. One outstanding example of this is the Drought Initiative, which brings together insurers, researchers and public institutions to find innovative solutions to the damage caused by the shrinkage and swelling of clay soils.

J.-N. Felli: More broadly, the Langreney Report on the insurability of climate risks, submitted to Ministers Bruno Le Maire and Christophe Béchu on 2 April 2024, sets out 37 recommendations. One of these is a priority to maintain the French natural disaster compensation system, better known as "CatNat", which is based on sharing costs between policyholders, insurers and the reinsurer Caisse Centrale de Réassurance (CCR). This accessible, shared system has proved its effectiveness, but its balance is threatened by the current paradigm shift. There are two sliders where we can make adjustments. On the one hand, there is the list of risks that are considered uninsurable by the market alone. On the other hand, there is the list of areas that we can no longer insure, because the overall social cost is too high: if we continue to cover them, we make the whole system insolvent. This second point is obviously very sensitive politically, and needs to be addressed in small steps. For the time being, all that has been decided is an increase in the additional premiums paid by insurers, resulting in a 12-20% rise in home insurance rates and a 6-9% increase in car insurance rates. It remains to be seen how sustainable these prices will be... Especially as there’s more to come: the Langreney Report proposes a five-yearly review – and Senator Christine Lavarde even recommends an annual revaluation mechanism. In the same vein, the Barnier Fund, which for 20 years has been helping local authorities to buy up the buildings most exposed to major natural hazards and financing work carried out by private individuals and small businesses to reduce the vulnerability of their homes or premises, must be increased in proportion to the rise in the number of claims. The effort is well worth it: it is estimated that €1 invested in this fund saves €3 in the long-term.

RM: What about the European Union? Does it play a role in helping the sector adapt to environmental challenges? 

J.-N. Felli:

Yes, it plays a structuring role. Through its green taxonomy, the Solvency II directive (and soon Solvency III), the SFDR and the “Fit for 55” package of legislation, it requires insurers to systematically take climate risks into account in their reports and to be more transparent with regard to the sustainability of their portfolios. In France, these recommendations have resulted in increased pressure from the Prudential Supervision and Resolution Authority (ACPR), which conducts regular climate stress tests to assess the resilience of French insurers in the face of extreme scenarios. 

RM: Do you think additional measures are needed for the insurance sector to adapt to environmental issues? 

J.-N. Felli: I’ll say it again: certain regions will become uninsurable, uninhabitable and unbuildable. Today, local authority premiums are already three to six times higher than they were five years ago. Eventually, it will be necessary to carry out an orderly withdrawal from areas that are overly exposed, to ensure that risk pooling continues to function and that insurers can continue to cover other areas that are risky but still insurable. This requires real political courage, at a time when some local authorities do not even want to set up risk prevention plans for fear of the consequences for property values within their boundaries. Another area for action is certain aspects of regulation. For example, in the event of a claim, the insurer is obliged to repair the damage but without improving the property. In other words, they have to make it identical to how it was before. But in many cases, it would be better to adapt: what's the point of putting the electricity meter or the carpet back in the basement in a flood zone?

RM: Do all these observations apply only to France? Or is the situation similar all over the world? 

J.-N. Felli: All countries are concerned. There has been a lot of talk about this recently in the United States following the massive fires in Los Angeles: an increasing number of insurers are refusing to underwrite new home insurance policies in California. But it is also interesting to look at solutions found by some of our neighbours. In the Netherlands, land-use planning policy includes flood prevention at the highest level, with partnerships between the government, insurers and local authorities. In Germany, the Länder (federal states) require transparency around climate risks for property transactions. In Scandinavian countries, insurers, often mutual companies, play an active role in advising and supporting individuals and businesses in the ecological transition. And further afield, in New Zealand, a “managed retreat” programme is beginning to organise the orderly withdrawal from flood-prone areas, backed by a public support fund. All these initiatives emphasise the virtuous complementarity between prevention, public investment and empowering policyholders.

Published in Reflets Magazine #157. Read the issue exceptionally in free access. Subscribe to read our upcoming issues! 

Interview by Louis Armengaud Wurmser (E10), Content Manager at ESSEC Alumni

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