Submitted by H. Hutton on Wed, 03/12/2025 - 15:15
4 December 2025 - New report urges insurers to drive co-ordinated governance against financial system vulnerabilities
The University of Cambridge’s Institute for Sustainability Leadership (CISL), in collaboration with ClimateWise, has released new research which outlines how insurers and governments are missing key aspects of risk and urgently need to take a more systemic approach.
The report, ‘Redefining systemic risk governance in the insurance industry’ argues that the escalating convergence of climate, nature, macroeconomic, and geopolitical risks is making global financial systems more fragile. 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.
Why This Matters
The cost of inaction is already clear. In 2024, natural disasters caused over $318 billion in U.S. economic losses, and global insured losses have topped $100 billion every year 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. Likewise, during Australia’s severe drought years, wheat yields dropped by 30 per cent, triggering a surge in crop insurance claims and loan defaults. Whilst in the energy sector, Hurricane Harvey in the U.S. disrupted Gulf Coast energy infrastructure, triggering large-scale insurance claims and energy price volatility.
A Proactive 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.
Insurers play a central role in this effort. Their expertise in assessing hazards and managing risk can serve as an early warning system for the wider economy. When their insights are combined with financial capital from banks and investors, it helps turn foresight into real-world resilience and stability.
Key co-management 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 for Systemic Change
To scale this approach, the report puts forward five actionable recommendations targeted at the entire financial and public sector:
- Scale Financial Innovation that connects insurance, banking, investors, and hybrid capital.
- Support Risk Co-management through shared data, joint stress-testing, and cross-sector governance.
- Enhance Advanced Integrated Modelling that goes beyond catastrophe models to capture real-time climate–economic–nature feedback.
- Expand Cross-sector Incentives that align market structures with resilience.
- Embed Systemic Thinking into existing governance for underwriting, investment, financing, and credit models.
Dr. Nina Seega – Director, Centre for Sustainable Finance, CISL, said:
“Against the backdrop of ever increasing physical impacts of a changing climate, this ClimateWise report highlights a crucial opportunity to transition from isolated risk management to co-operative, systemic resilience. The growing convergence of climate, nature, and macroeconomics presents complex challenges that no single sector can solve alone. The recommendations set out in 'Systemic Risk Governance for the Insurance Industry' offers a pathway for the financial sector to collaborate across banks, investors, and regulators to strengthen our global financial architecture against future shocks.”
Rachel Delhaise, Head of Sustainability at Convex, said:
“In the insurance industry, we are witnessing the real-time impact of escalating climate risk- from unprecedented losses driven by wildfires to supply-chain disruptions intensified by climate change. To keep pace, we must continue to adapt and refine our risk models so they reflect the frequency, severity and interconnectivity of emerging risks. ClimateWise’s latest report highlights the unique role insurers can play in applying their risk expertise to reduce the financial vulnerabilities linked to growing climate- and nature-related threats, underscoring the need for a more forward-looking, cross-sector approach to systemic risk governance.”
