Why insurers worry the world could soon become uninsurable

Top insurers fear the climate crisis could soon outpace industry solutions, effectively threatening to make entire regions around the world uninsurable.

Günther Thallinger, a board member at Allianz, one of the world’s biggest insurers, recently outlined how the world is fast approaching temperature levels where insurers will no longer be able to offer cover for financial services, such as mortgages and investments.

In practice, this scenario implies some may face difficulty being able to afford home insurance cover, which is typically a prerequisite for getting a mortgage.

In a LinkedIn post published in late March, Thallinger made the case for rapid decarbonization, pointing out that entire asset classes were “degrading in real time” as extreme weather events take their toll. Perhaps most strikingly of all, he warned the worsening climate crisis appears to be on track to destroy capitalism.

Insurance, which is regarded as the invisible lubricant of the global economy, has a unique role to play in addressing climate-related risks. As professional risk managers, insurers routinely allow investors to take on calculated risks, protecting individuals and businesses against financial losses.

Thallinger, who is responsible for investment management and sustainability at Allianz, told CNBC that approximately two-thirds of economic losses from natural catastrophes are currently uninsured, indicating a “major societal problem.”

The so-called protection gap means that the financial burden of these disasters often falls on individuals, businesses and governments, rather than insurance firms.

“If this volume just grows even more, we simply have a societal situation that is not bearable anymore because it is just too much risk that is no longer covered,” Thallinger told CNBC by video call.

“The logic is not ours or mine. No, absolutely not. There are many people who are actually talking about how you cannot insure certain assets. It’s very, very difficult to deal with these assets as an investor.”