Redefining Systemic Risk Governance in the Insurance Industry
4 December 2025 - A new report by ClimateWise provides a framework for insurers to drive co-ordinated governance to address financial system vulnerabilities
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ClimateWise has published a new report outlining the critical role of insurers in advancing systemic risk governance.
The research warns that whilst physical climate impacts, such as wildfires and floods, are increasing in frequency and severity, traditional risk models are struggling to capture the dynamic, cross-sector nature of these risks. To address this, the report calls for urgent, co-ordinated action from the financial sector and policymakers to strengthen resilience, setting out five key steps for insurers, banks, investors, and regulators to better manage systemic risk.
Why this matters
The cost of inaction is already clear. In 2024, natural disasters caused over $318 billion in U.S. economic losses, while global insured losses have exceeded $100 billion annually since 2017.
The report considers practical examples of how climate and nature risks manifest across the agriculture, real estate, energy, transport and marine sectors. The examples show how disruptions transmit through interconnected financial systems. For example, in real estate, over 13 million U.S. properties face 100-year flood risks, yet banks and insurers often rely on divergent models that overlook natural buffers such as wetlands.
A framework for financial stability
The report introduces Systemic Risk Governance—a proactive approach that replaces fragmented risk management with cross-sector collaboration to build shared resilience. It calls for insurers, banks, investors, and regulators to work together using shared data, integrated models, and common resilience goals.
It outlines how insurers play a central role in advancing systemic risk governance. Their expertise in hazard assessment and risk management can serve as an early warning system for the wider economy. Combined with financial capital from banks and investors, this foresight can translate into real-world resilience.
Key strategies include cross-sector stress testing, integrating insurance assumptions into real-time scenario planning, and leveraging network-based modelling (e.g., supply chain and ecosystem dependencies) alongside traditional financial analysis.
Five key recommendations
- Scale financial innovation connecting insurance, banking, investors, and hybrid capital.
- Support risk co-management through shared data, joint stress-testing, and cross-sector governance.
- Enhance advanced integrated modelling beyond catastrophe models to capture real-time climate–economic–nature feedback.
- Expand cross-sector incentives aligning market structures with resilience.
- Embed systemic thinking into underwriting, investment, financing, and credit models.
Citing this report
University of Cambridge Institute for Sustainability Leadership (CISL). (2025). Redefining Systemic Risk Governance in the Insurance Industry (Cambridge, UK: Cambridge Institute for Sustainability Leadership).