Changing flood and drought patterns are reshaping the risk profile of global insurance and reinsurance markets, according to the 2026 Climate and Catastrophe Insights (CCI) report released ahead of Earth Day by global professional services firm Aon plc.
Using its catastrophe data and forward-looking climate models, Aon reports that natural climate risks are continuing to change, with implications for communities, policymakers and insurers. Aon predicts that global economic losses from flooding will exceed US$42 billion by 2025, with cumulative losses since 2000 reaching approximately US$2 trillion.
Aon also believes that drought is an increasingly important factor in secondary disasters, with drought-related impacts expected to cause economic losses of approximately US$13 billion by 2025.
Aon said the impacts were not limited to direct damage but also affected the wider economic system, particularly in the context of rising energy demand and water stress. Aon said these trends can be observed globally, with a particularly significant impact on the United States.
According to Aon’s Climate Risk Monitor, by mid-century, rainfall-driven (rain and snow) flood risks in the United States could increase by about 12% under a moderate emissions scenario and by about 19% under a high emissions scenario.
Aon noted that in 2025, the United States recorded 14 separate 24-hour rainfall events, equivalent to once-in-a-millennium flood levels, along with severe flash flooding in central Texas and widespread flooding in the Mississippi Valley.
Aon further reported that flood-related losses were also significant internationally.
In China, Aon believes floods will be the country’s biggest loss event in 2025, with losses expected to reach US$14 billion. Aon’s forecasts suggest other regions, including parts of Africa, may face increasing risks of extreme rainfall and flash flooding.
From a policy perspective, Aon highlighted the need for protection gaps and updated resilience strategies. Citing National Flood Insurance Program (NFIP) data, Aon said that among U.S. counties that receive NFIP payouts for 2025 flood events, only 2.6% of residential properties are covered by NFIP policies. At the same time, Aon observed that the penetration of private flood insurance has increased, with both the number of policies and premiums more than doubling between 2020 and 2024.
Aon noted that the changing balance between public and private insurance provision poses both risks and opportunities. Aon said effective risk management will depend on regulatory measures, land use planning, building standards and investment in traditional and natural infrastructure.
Aon also highlighted the role of mitigation strategies, including nature-based solutions such as wetlands and coastal ecosystems used alongside engineered defences. Additionally, Aon points to emerging concepts such as amphibious housing designed to adapt to rising flood waters as potential tools to reduce losses.
Based on these trends, Aon said organizations that integrate forward-looking climate analysis into their planning, underwriting and investment processes may be better able to manage future risks. Aon recommends that insurers and reinsurers review risk concentrations and expand the use of climate-informed scenarios in underwriting, product development and capital management.
Michal Lorinc, head of disaster insights at Aon, commented: “Over the past three decades, floods have become an increasingly high-impact natural hazard, and in response, Aon has developed a range of innovative products and coverage to help our customers recover faster and more fully from flood events. Disaster modeling is also an area where we continue to make significant investments, helping customers gain a clear understanding of flood risk to influence better business decisions.”
Andy Neal, managing director of public sector partnerships at Aon, said: “Political uncertainty has heightened the volatility of natural disasters. Coordination between the public and private sectors will become increasingly important for policymakers to expand coverage, invest in resilient infrastructure and use risk insights to inform planning decisions. Those who act early are better able to protect communities and economies in the long term.”
Liz Henderson, head of climate risk consulting at Aon, said: “Climate change is increasingly impacting insurers’ business models and these natural disaster trends demonstrate that the risk landscape is structurally more complex and that traditional views of risk based solely on historical experience are no longer sufficient.”
