Ortec Finance, known for its technology and risk management expertise in finance, has released new findings highlighting how quickly climate pressures are reshaping the insurance industry’s financial outlook.
The firm’s research concludes that insurers need to make a fundamental shift in their investment strategies if they intend to protect their portfolios and maintain operational stability as climate impacts intensify.
Throughout the analysis, Ortec Finance attributes growing pressure on the sector to rising natural catastrophes, climate-related inflation and a widening mismatch between asset exposure and underwriting concentration.
Ortec Finance said that if global temperatures continue on their current high trajectory, insurers could face nominal investment losses of close to 19% by 2050, with real losses exceeding this figure once ongoing inflation is taken into account.
The company explained that these pressures have impacted investment returns, premium levels and claims costs, posing challenges to traditional insurance models.
Ortec Finance warned that the combination of weak portfolio performance and rising liabilities could undermine widely used risk transfer structures and cause some global assets to become uninsurable.
The company stressed that insurers must develop a deeper understanding of how climate impacts differ across regions and on both sides of their balance sheets. Strategies based solely on historical performance or market size may overlook how regional vulnerability changes under changing climate conditions, Ortec Finance noted.
Maurits van Joolingen, Managing Director of Climate Scenarios and Sustainability at Ortec Finance, commented: “For insurers, this means rethinking strategic asset allocation to include climate resilience. Home bias, often driven by familiarity, regulatory constraints and perceived stability, can be a source of climate risk concentration. Investment frameworks need to evolve to incorporate regional climate sensitivities, infrastructure adaptability, policy uncertainty and the constraints of risk transfer mechanisms such as reinsurance in portfolio construction.”
Ortec Finance highlights that many insurance companies hold globally diversified asset portfolios while underwriting risks concentrated in specific geographies. The company explains that this structural imbalance can exacerbate exposure when climate-related events occur. Severe events can create compounding pressures by simultaneously increasing claims and reducing the value of local assets.
While diversifying exposure across regions provides some protection, Ortec Finance notes that its effectiveness is shrinking as climate-related events increasingly impact multiple locations through shared vulnerabilities.
The firm’s findings indicate that real estate risks are particularly sensitive. Ortec Finance reports that under a warming scenario, real asset performance in high-risk regions of North America and Europe will decline by approximately 50% by 2050, while assets in low-risk regions in the same region will decline by closer to 16-17%. Discussing liability, Ortec Finance noted that non-life insurers face rising claims costs due to rising rebuilding and repair costs.
Another issue Ortec Finance identified is the gap between growing physical risks and how these risks are currently reflected in asset prices. The company warned that many risks, particularly those that develop in non-linear or irreversible ways, remain undervalued, leaving insurers exposed to sudden market corrections.
Doruk Onal, climate risk expert at Ortec Finance, added: “While the pricing gap is an area of risk for insurers, it also creates a huge opportunity for them to better understand climate risk as a whole so that they can adjust their portfolios to benefit from longer-term repricing.”
While Ortec Finance’s ramp-up path illustrates the significant challenges facing the industry, the company highlighted that its transition-related scenarios present significantly more favorable outcomes. In these cases, the long-term benefits of a successful transition to a low-carbon economy could improve premium affordability, stabilize claims patterns and help maintain insurance business continuity.
