Climate-related losses are increasingly falling outside conventional insurance as businesses face a combination of physical damage, operational disruption, supply-chain dependencies and longer-term environmental change, according to a report from Lockton.

Global heating: navigating a new business reality examines how rising temperatures and changing weather patterns are affecting businesses across different sectors. Lockton warns that a growing proportion of resulting losses are either uninsured or do not fit easily within traditional insurance structures.

The issue is particularly evident where climate change affects business performance without causing direct physical damage. In agriculture, for example, declining yields and changing growing conditions can have a greater financial impact than damage to property or equipment. Lockton cites European Commission forecasts from August that reduced expected yields for major EU summer crops by as much as 14%.

Multinational businesses face similar challenges through their supply chains, with exposure potentially extending across hundreds of suppliers, multiple tiers and different geographical markets. Lockton pointed out that it is not possible to insure every potential point of failure, so organisations need to consider how they retain and finance risks that sit outside conventional cover.

Blake Roseveare, head of specialty at Lockton, said: “Our research shows that global heating is changing the status quo. Organisations are encountering greater underwriting scrutiny with tighter terms and are seeing financial consequences of global heating that do not fit within the usual insurance structures. This is widening the protection gap and increasing demand for alternative approaches to risk transfer that will complement traditional solutions.”

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