RISING losses from climate-related disasters are making insurance policies unaffordable around the world, with many vulnerable households being priced out as insurance premiums rise faster than incomes, according to the Allianz Group’s economic research team.
The “Allianz Global Insurance Report 2026” said climate change is widening insurance protection gaps, as insurers face growing losses from natural disasters, higher costs, and weaker household spending power.
“Climate risk is where this dynamic is already most visible and most advanced,” Allianz Research said.
The study said insured losses from natural disasters are increasing by 5 to 7 percent annually after inflation, driven by worsening climate change, as well as rapid urbanization, more people and properties in disaster-prone areas, and higher construction costs.
Higher insurance premiums cause problems to weaker household finances, creating a “self-reinforcing vulnerability trap” for lower-income families, the report noted, saying that “households are therefore being squeezed from both directions: rising insurance costs and weakening income resilience.”
The poorest and most climate-exposed households are bearing the brunt of the trend as rising risks deepen poverty and underinsurance, as “disaster insurance risks become a product accessible only for wealthier households,” said the report.
Data from developing countries show that the poorest 40 percent of the population suffer climate-related income losses that are 70 percent higher than average. Meanwhile, every 1°C rise in temperature could increase poverty rates by 0.9 to 2.3 percentage points.
“Similar patterns are emerging in developed economies, where climate change also drives chronic, rather than temporary poverty, making exclusion from insurance more persistent,” Allianz Research said.
The study warned that declining private insurance affordability is increasingly shifting financial burdens onto governments already facing mounting fiscal pressures from climate-related disasters.
In the European Union, uninsured direct disaster losses averaged €59 billion annually from 2021 to 2023, highlighting the large share of climate-related losses still outside formal insurance systems.
Thus, governments globally are being forced to expand state-backed insurance programs as private insurers retreat from high-risk markets.
However, Allianz Research cautioned that public support mechanisms alone will not solve the problem if governments fail to invest aggressively in climate adaptation measures such as flood defenses, resilient infrastructure and stricter building standards.
“Without combined strategies, the fiscal and insurance capacity underpinning the public-private NatCat schemes will be progressively eroded,” Allianz said.
NatCat or Natural Catastrophe schemes are specialized insurance frameworks designed to cover damages caused by natural disasters like floods, earthquakes, and wildfires. These programs — often backed by public-private partnerships — pool risk and guarantee compensation, addressing the widespread underinsurance of properties in disaster-prone areas.
Insurers are now expected to focus on risk reduction, resilience incentives, and operational efficiency improvements.
Automation, artificial intelligence, and digital claims management could help reduce operational costs while preserving coverage quality, the study said.
Nonetheless, Allianz Research stressed that artificially suppressing premiums could worsen long-term protection gaps by weakening incentives for risk reduction.
“Where lower-income households are being priced out of coverage, targeted support mechanisms such as means-tested vouchers or public reinsurance are likely to prove more effective and transparent than below-risk pricing,” it said.