Climate change is emerging as a potential trigger that could shake the global insurance market and financial system as a whole. With repeated weather anomalies such as wildfires, floods, and heatwaves, housing insurance premiums are soaring in the United States and Europe, and there are increasing instances where insurance renewals are being denied in some high-risk areas.
Without insurance, borrowers face structural constraints in obtaining loans, leading financial institutions to gradually withdraw from those areas. The decline in real estate prices and reduction in liquidity are intertwining, resulting in widespread anxiety across the market.
The Board of Governors of the Federal Reserve System (Fed) recently noted in a congressional report that "within the next 10 to 15 years, in some areas, not only will mortgage loans be unavailable, but automated teller machines (ATMs) and financial service counters may also disappear," referencing the potential structural collapse of financial infrastructure. Inside the Fed, it is known that attention is being paid to banks already reducing credit supply in high-risk areas.
Warren Buffett, Chairman of Berkshire Hathaway, warned that "storm damage is continuing to increase," and "one day, there could be truly massive insurance losses." Günter Thalinger, Head of Sustainability at global insurer Allianz, pointed out that "if insurance supply is interrupted, the entire financial services sector could face paralysis," highlighting the potential structural risk.
This trend was also confirmed in a report from an international organization monitoring the financial system. The Financial Stability Board (FSB) reported that insurance expenses are rising rapidly in regions at high risk of disasters, and in some areas, insurance supply is completely halted, stating that "climate shocks could trigger chaos across the market."
The problem is that policy responses are not being backed. President Donald Trump is re-evaluating climate-related regulations since his inauguration in January and is pushing to withdraw from the Paris Agreement again. The Fed and the Federal Insurance Office (FIO) under the Treasury recently exited from the international climate finance cooperative known as the Network for Greening the Financial System (NGFS).
Some in the market expressed concern that "climate disasters are collapsing the insurance system in specific regions, leading to a structural erosion that results in loan reductions, asset declines, and credit crunches," and that "unlike past financial crises, this could unfold gradually but may lead to an irreversible crisis."
Experts are diagnosing that climate risks have become a key variable for financial stability, transcending simple environmental issues. Major financial authorities in the United States and Europe are adjusting stress test criteria to reflect the impact of climate change on asset values, although some countries are actually rolling back related regulations.
Economists analyzed that "this crisis may not be a shock caused by a single event but rather a long-term erosion type crisis leading to insurance reduction, real estate value decline, and credit crunches." They predict that if a climate-related financial crisis materializes, the pace of shock may be slower compared to the 2008 crisis, but the extent of damage could be broader and recovery may not be easy.