A study at Tel Aviv University indicates an erosion of profitability of 11%–100% in homeowners insurance in the US by the end of the century due to hurricanes – but also the potential to leverage the expected losses for climate investments that will cover 14%–85% of emissions reduction targets
Climate change is no longer a future scenario – it is an everyday reality. Extreme events such as hurricanes, floods and fires are occurring with increasing frequency and intensity, causing enormous damage and endangering the entire global economy. The insurance industry, which is at the forefront of the economic response to natural disasters, is particularly exposed. As losses increase, claim rates rise, profitability erodes and the future of the private insurance market is in jeopardy.
In a recent study conducted at Tel Aviv University, together with partners from Israel and abroad, we examined the economic implications of climate change on the homeowners insurance market in the United States. Our findings indicate a sharp decline in the profitability of insurance companies – between 11% and 100% by the end of the century – due to the increase in hurricane damage. An inevitable result will be increased premiums and reduced insurance coverage. In extreme cases, we may see a real collapse of the private insurance market.
But within this challenge lies enormous potential. Insurance companies hold enormous financial clout—about 15% of the capital in the United States—and a unique advantage in long-term investments. Rather than seeing themselves as “victims” of the climate crisis, they can become active agents in the fight against it. If the expected profitability losses were channeled into direct investment in emissions-reduction technologies—such as carbon capture—the insurance industry could make a real contribution to achieving climate goals. In fact, our calculations show that such investments could cover between 14% and 85% of global emissions reduction targets.
This also requires broader policy thinking. Governments are accustomed to stepping in when the private insurance market collapses – for example, through government insurance programs that subsidize unmanageable risks. But these solutions come at a high public cost, and sometimes even encourage settlement in dangerous places. By contrast, if the financial system can allocate resources to prevention and response in advance, the public will benefit from reliable insurance coverage alongside real reductions in environmental risks.
Beyond that, there is an opportunity for a change in mindset. For many years, insurance companies have been talked about as the “gatekeepers” of the economy – those who cover damages after the fact. Now it turns out that they can also serve as agents of change: investing in green technologies, serving as a model for others in the financial system, and becoming a bridge between today’s economy and tomorrow’s economy. Instead of being merely reactive, insurance companies can be proactive – and contribute directly to shaping a safer future.
My conclusion is clear: to deal with climate change, regulation or governments alone are not enough. The big financial players must also be brought into the game – and insurance companies are just that. If they recognize the opportunity, they can become not only gatekeepers against disasters but also real drivers of change.
The research was conducted under the leadership of doctoral student Moran Nebrisky and Prof. Colin Price from the Department of Geophysics at Tel Aviv University, in collaboration with Prof. Ruslana Rachel Platnik from Emek Jezreel Academic College and the University of Haifa.
