Systemic approach from insurers, banks and government needed to address global climate risk

The “escalating convergence of climate, nature, macroeconomic and geopolitical risks” is making global financial systems more fragile.

That is according to a new report from the University of Cambridge Institute for Sustainability Leadership (CISL), which said that the insurance industry urgently needs to take a more “systemic approach” to building resilience against such challenges.

The report, called Redefining systemic risk governance in the insurance industry, was done in collaboration with insurance industry network ClimateWise and published on 4 December 2025.

It highlighted both 2005’s Hurricane Katrina and the recent US wildfires as areas where a lack of co-ordination between insurers, banks and the public sector had led to underinsurance, retroactive intervention and ultimately insurer insolvencies.

Insurers withdrawing from areas they deem too high risk could also amplify fragility in the global economy. Cross-sectoral frameworks, the report suggested, would help reduce this vulnerability.

Dr Nina Seega, director at CISL, explained: “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.”

Recommendations

The report offered five key recommendations that would facilitate systemic change.

This includes scaling financial innovation between banks, insurance and investors, supporting risk co-management through data sharing, expanding cross-sector incentives, embedding system thinking and enhancing modelling of natural catastrophe and climate risks, especially in relation to the global economy.

Seega said: “The recommendations set out in [the report] offers a pathway for the financial sector to collaborate across banks, investors and regulators to strengthen our global financial architecture against future shocks.”