Impact of Climate Change on Homeowners Insurance Market
In January 2025, devastating wildfires in Los Angeles underscored the escalating consequences of climate change on the insurance industry. A U.S. Treasury Department report outlined how homeowners insurance is becoming increasingly expensive and difficult to obtain due to climate-related costs. Researchers from renowned institutions, including Harvard Business School, have identified extreme weather as a growing challenge for the homeowners insurance market.
According to the National Oceanic and Atmospheric Administration (NOAA), the United States experienced 27 weather and climate events in 2024, each exceeding $1 billion in damages. Meanwhile, nonprofit InfluenceMap revealed that insurance industry groups have resisted climate regulations. These groups questioned the link between climate change and insurance premiums, contending that insurers can manage risks without regulatory intervention.
The International Association of Insurance Supervisors (IAIS), representing a significant portion of global insurance premiums, has prioritized climate risk. Between 2023 and 2024, the IAIS led public consultations to update guidelines for incorporating climate risks into regulatory frameworks. Major industry associations participated, often expressing doubt about the necessity for increased regulations.
The U.S. Chamber of Commerce challenged the notion of climate change as a financial stability risk for the insurance sector. Similarly, the Global Federation of Insurance Associations resisted altering business models due to natural disaster frequency, asserting their infrequency. Investment practices also saw resistance to integrating climate considerations, though institutions like the Life Insurance Association of Japan supported IAIS climate proposals.
In April 2025, the IAIS released a supervisory paper on climate risk featuring recommendations on corporate governance, risk assessments, and climate-related disclosures. Despite some industry resistance, the IAIS maintained its original stance in addressing climate-related risks. Kristina Belesova of Insurance Europe highlighted the industry's recognition of climate change as an urgent threat, committing to ongoing dialogue with the IAIS.
Marie Therese Bitterlich of the IAIS noted that feedback from insurers led to minimal changes in the final report, affirming the need for strengthened guidance on climate risks. This underscores the commitment to addressing climate-related challenges within the insurance sector.