Insurers and governments are overlooking key risks in an increasingly interconnected financial system, according to new research from the University of Cambridge’s Institute for Sustainability Leadership and ClimateWise.

The report warns that converging climate, nature, macroeconomic and geopolitical threats are making global financial systems more fragile, while traditional risk models struggle to capture these dynamic, cross-sector impacts.

The study notes that natural disasters already impose severe economic and insured losses. In 2024, disasters caused over US$318bn in US economic damage, while global insured losses have exceeded the equivalent of US$100bn annually since 2017. Examples show how risks ripple across sectors. Over 13 million US properties face 100-year flood risks, yet banks and insurers often overlook natural buffers such as wetlands, according to the report.

CISL proposes cross-sector collaboration that integrates climate, nature, macroeconomic and geopolitical risks, and advocates proactive governance amongst insurers, banks, investors and regulators using shared data, real-time scenario planning and network-based modelling of supply chains and ecosystems.

Dr Nina Seega, director of the Centre for Sustainable Finance at CISL, said: “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. The recommendations set out in Systemic Risk Governance for the Insurance Industry offers a pathway for the financial sector to collaborate across banks, investors and regulators to strengthen our global financial architecture against future shocks.”

Rachel Delhaise, head of sustainability at Convex, commented: “In the insurance industry, we are witnessing the real-time impact of escalating climate risk – from unprecedented losses driven by wildfires to supply chain disruptions intensified by climate change. To keep pace, we must continue to adapt and refine our risk models so they reflect the frequency, severity and interconnectivity of emerging risks. ClimateWise’s latest report highlights the unique role insurers can play in applying their risk expertise to reduce the financial vulnerabilities linked to growing climate- and nature-related threats, underscoring the need for a more forward-looking, cross-sector approach to systemic risk governance.”

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