This post examines how recent extreme weather events are reshaping risks for the insurance and energy sectors. It also explores what practical steps both industries must take to adapt.
Drawing on cases such as Storm Isha and Storm Ciarán, plus longer-term trends like wind droughts and heatwaves, I explain why financial exposure is rising. Improved risk modelling and targeted weather information can reduce future economic and societal impacts.
Rising costs: how storms and climate extremes hit insurers and energy producers
Extreme weather increasingly translates into large insured losses and volatile energy markets. In January 2024, Storm Isha generated about €500 million in insured losses across Ireland and the UK.
The storm disrupted power lines and pushed wholesale prices down because of record wind generation. That same pattern—where damage to assets and swings in generation co-occur—illustrates the complex, double-sided impact on energy and insurance alike.
Global figures underline the scale of the problem: insurers paid more than $100 billion in weather-related claims in 2023. Historical disasters like Hurricane Katrina (2005) remind us how urban density and economic development amplify losses—Katrina alone caused roughly $100 billion in insured losses.
Insurers group events into primary hazards (hurricanes, windstorms) and secondary hazards (wildfires, hail) to calibrate loss potential. The increasing frequency and severity of extremes are stressing models built on historical assumptions.
Storm Isha and Storm Ciarán: examples with broader lessons
Storm Ciarán in November 2023 caused approximately €2 billion in insured losses. Only the most intense storms generate the very largest claims.
Storm Isha shows how a single event can simultaneously affect insurance losses and energy markets. It disrupted infrastructure while generating large, sometimes unexpected, amounts of renewable electricity that affect prices.
Physical damage and market dynamics are tightly coupled. A storm that brings high winds can both damage transmission lines and produce surplus wind power.
Conversely, calm periods—so-called wind droughts—can depress renewable output and raise reliance on gas-fired generation.
Energy impacts: from wind droughts to heat-driven demand spikes
For the energy sector, extremes manifest in two primary ways: physical damage to infrastructure and altered supply-demand balances. The wind drought from April to September 2021 significantly reduced renewable output across parts of Europe.
This forced greater dependence on gas-fired power and exposed supply vulnerabilities. Heatwaves in southern Europe have driven peak electricity demand up by as much as 10% due to air conditioning.
Grids are stressed during the very periods when thermal generation or transmission can be compromised. These patterns increase both operational risk (outages, repair costs) and market risk (price volatility).
Practical adaptation: what insurers and energy companies must do now
From my 30 years in the field, the most effective responses are practical, coordinated, and data-driven.
Key measures include:
- Strengthened risk modelling that integrates climate projections, urban growth, and systemic dependencies (e.g., gas supply and transmission bottlenecks).
- Targeted weather intelligence tailored to underwriting and asset management—short, medium and long-term forecasts linked to portfolio exposures.
- Infrastructure resilience investments: grid hardening, undergrounding critical lines, and rapid repair capability for utilities.
- Market and product innovation in insurance (parametric products, better pricing of catastrophe risk) and energy (storage, diversified generation, demand response programs).
- Cross-sector collaboration between insurers, utilities, regulators and meteorological services to share data and coordinate responses to compound events.
Adapting to a climate with more frequent and severe extremes is not optional.
The examples of Storm Isha, Storm Ciarán and the wind drought of 2021 show the pathways of risk—and the actions we must take to manage them.
Here is the source article for this story: How extreme weather will affect the insurance and energy sectors