As the impacts of climate change intensify, the frequency and severity of extreme weather events are rising. From wildfires to flash floods, the financial risks are growing. Yet the insurance sector remains slow to adapt.

New research from The University of Manchester and Manchester Metropolitan University finds that, despite growing awareness, insurers continue to rely on outdated models that struggle to reflect today’s climate realities. Many are based on historical data and fail to capture the accelerating pace of environmental change.

In 2023, insured losses from natural disasters reached $250 billion, according to MunichRE. The January 2025 wildfires in Los Angeles may have added another $250 billion in total damage, much of it uninsured. Vulnerable communities were hit hardest.

Though insurers are investing in new modelling tools, the use of multiple, often conflicting models leads to inconsistent risk assessments. Companies tend to select projections that align with business interests rather than accuracy.

Many firms believe they can adjust their portfolios quickly to avoid climate exposure, but this overconfidence is risky. The pressure to deliver short-term profits discourages long-term planning, while the expectation of government bailouts adds a layer of moral hazard.

Researchers describe this as practical ignorance: a tendency to downplay uncomfortable truths and delay necessary reform. As noted by the Institute and Faculty of Actuaries (IFoA), climate risks no longer fit neatly into traditional actuarial methods.

If the insurance sector is to play a meaningful role in climate adaptation, it must rethink how it models risk, prices policies, and protects the most exposed. Climate change is not a distant threat. It is a present and growing crisis that demands urgent and systemic change.

• Read the 2025 Center for International Policy Studies blogpost by James Jackson, Research Fellow at The University of Manchester’s Sustainable Consumption Institute.