Who knew?
Above, Sarah Kapnick is former chief scientist of NOAA from April 2022 to October 2024, and presently the inaugural Global Head of Climate Advisory at JP Morgan Chase.
Extreme weather events — such as the heat wave gripping Europe — are making a growing number of assets too risky to insure, according to a director at Europe’s largest primary insurer.
“Certain locations and perils cannot be covered as we would wish them to be covered,” Günther Thallinger, who sits on the management board of Allianz SE, said in an interview. “We cannot help it.”
Heat, floods, storms and wildfires “could become so frequent that they challenge traditional insurance models,” he said. “Risk-adequate pricing would not be affordable any longer.”
Insurers, bankers and financial analysts are now trying to calculate the short-to-medium-term costs of continual temperature rises. Carsten Brzeski, global head of macro at ING Group NV, said in a client note this week that heat waves represent a “new downside risk” to the region’s economic growth.
The analysis feeds into a growing awareness across Europe that homes, schools, hospitals, transport networks and other forms of infrastructure will need significant investments in order to adapt to the rapidly changing climate. Brzeski says Europe faces an accumulated economic loss equivalent to 0.8% by 2029, as tourists stay away, people become less productive and supply chains get disrupted.
Insurance is the corner of finance that’s responding fastest to such risks, according to Sarah Kapnick, JPMorgan Chase & Co.’s global head of climate advisory.
Wherever assets are exposed, prices on insurance coverage “are going up,” she said in an interview with Bloomberg Television in London. And “the stresses that we see today are only going to get worse because heat waves like this ten years from now will be over 40C and it will keep going.”
Climate adaptation itself also presents an economic opportunity—one that China is better positioned to take advantage of than the United States. China is already dominant in clean energy industries, which now account for roughly one-third of its economic growth. The country that can produce adaptation technologies at scale stands to gain not only new manufacturing and job opportunities but also trade advantages as the rest of the world seeks out climate-resilient infrastructure. There will be growing global demand for grid equipment designed to withstand extreme weather, distributed energy and storage systems, water-saving irrigation equipment and climate-smart agricultural technologies, and climate-resilient construction materials, as well as data services such as AI-enabled early warning systems, meteorological and satellite-data services, and climate analytics platforms. If the United States continues to underinvest in adaptation-related technologies, knowledge, and expertise, it risks ceding ground in yet another consequential industry.
As climate change becomes more and more disruptive, a United States that cannot protect its infrastructure and other economic assets will suffer immensely. It will face skyrocketing disaster response bills, become less attractive to investors, fall behind in emerging industries, and ultimately become less competitive. Although China has a lot left to do to make its own economy more climate resilient—and both countries still need to be doing much more to cut their greenhouse gas emissions and address the root cause of climate risk—it is far ahead of the United States in building the state capacity and crafting the long-term plans necessary to prepare for the extreme weather to come. It’s time for Washington to make investing in adaptation a priority. If it fails to act, the U.S. economy will suffer the consequences.