Insuring the Unpredictable

Who will take care of insuring the world when climate risks become the new normality? It is a question that concerns not only insurance companies, but the entire relation between governments, markets and citizens. Because risk, when it can no longer be mutualized, turns into an element of exclusion. Giulio Terzariol, CEO Insurance of Generali and a Bocconi alumnus, knows the size of the challenge well enough. The so-called climate protection gap — the yawning gap between losses caused by extreme natural events and damages actually covered — has reached 57% globally and risks widening further, effectively making entire geographical areas “uninsurable”. “The principle of mutuality is under pressure,” says Terzariol. “If we don’t intervene with new tools, there is a risk of anti-solidarity drift,” which could transform insurance protection into a privilege reserved for the few. In the following interview, Terzariol outlines a path of deep transformation for the industry: from climate pricing technologies to the co-design of public-private solutions, including prevention, sustainable investments and a new governance of risk.

In recent years, we have witnessed dizzying growth in damages from extreme climate events. Some speak of a “climate protection gap”, i.e. the growing gap between damages incurred and those actually covered. How is this gap evolving?

In 2024, global economic losses due to natural disasters reached $318 billion (source: Swiss Re Institute, Sigma Report 2025) and only $137 billion were covered by insurance, exhibiting a real annual growth rate of 5-7%. The protection gap still stands at 57%. The most recent estimates forecast climate-related losses of $12.5 trillion by 2050, which will translate into $1.1 trillion in extra costs for health care systems (source: WEF, 2024). Climate change affects the environment, the entire society, human infrastructure and daily living.

In this context, what are the limits of the traditional insurance model?

The principle of mutuality is under pressure due to the increase in frequency, intensity and correlation of extreme weather events. At the same time, the reinsurance market, a historical stabilization lever, is experiencing a hardening phase with rising premia and greater selectivity. It is essential to strengthen our "primary business" with disciplined underwriting, adequate rates and diversified portfolio management. In addition to traditional coverage, alternative solutions are emerging that include parametric policies, CAT bonds and co-designed models with the public sector to share extreme and systemic risks.

How are insurance companies adapting pricing and forecasting models to the intensification of physical risk?

Insurance pricing is evolving from an approach based on historical data to models with future climate scenarios. New technologies support the use of data that until a few years ago were not accessible, such as data on the physical characteristics of properties. At the same time, the ability to analyze increasingly complex data enables insurance companies to accurately estimate potential future damages, customizing rates based on the specific vulnerability of an asset. The goal is not only to ensure technically adequate pricing, but to better understand the dynamics underlying climate events and promote measures of prevention that mitigate the impact of the natural event.

What role can companies play in closing the protection gap?

Our industry has a key role thanks to its experience in risk management, long-term investment and proximity to the customer. The insurance industry is well positioned to mobilize resources towards sustainable infrastructure, renewable energy and technological innovation. However, we need a clearer normative environment, a more level playing field and a framework that acknowledges the long-term time horizon taken by insurance companies.

In this scenario of increasing risk, more and more territories are considered “uninsurable” according to standard actuarial criteria, and the concept of mutuality comes under pressure. How can we manage the risk of insurance exclusion and avoid that insurance protection becomes a privilege for the few?

There is a risk of ‘anti-solidarity’ in markets exposed to extreme weather events, such as certain areas of the United States, with insurance costs that include implicit subsidies for high-risk areas. This can increase territorial selection and polarization. To prevent insurance protection from becoming a privilege, technical and institutional levers can be activated to mutualize catastrophic risk, such as dynamic pricing, government-funded preventative measures and public-private pooling solutions.

In the insurance sector, there is a much talk about "prevention" and "resilience". But how do insurance companies move to incentivize more sustainable behaviors and reduce exposure to risk?

The European insurance industry manages €9.5 trillion in assets (source: Insurance Europe), directing investment towards climate transition and resilience projects. Collaborative solutions are needed to protect people, infrastructure and economies which go beyond traditional risk transfer models. Leveraging technology will improve climate risk assessment and climate resilience. And public-private partnerships will be essential for more accessible insurance coverage, especially in the case of SMEs. In addition, insurers can implement risk mitigation mechanisms that include reinsurance and CAT bonds.

Can you provide us some examples of the initiatives and projects launched by Generali?

The Generali Group has launched a series of technical initiatives aimed at strengthening its ability to deal with extreme weather events, through the optimization of underwriting processes and risk exposure management. At the same time, Generali is committed to customer support, offering concrete solutions for risk prevention and loss mitigation. In this context, we have created a center of excellence: the Climate Hub. It aims to strengthen knowledge of Natural Catastrophes (Nat Cat) and develop a detailed understanding of the expected impact of Nat Cat risk on insured assets, ensuring that this understanding is adequately shared throughout the insurance value chain. We also pay priority attention to SMEs, supporting their resilience against climate risks with the development of holistic risk management solutions that combine risk transfer and risk mitigation tools.

What structural transformations do you envision for the industry in the next 10 years, if it is to remain sustainable, inclusive and capable of coping with the new climate normality?

A first lever is greater access to standardized data on hazard and damage, enabled by a common EU taxonomy that would improve physical risk assessment and insurance underwriting strategies. Secondly, the development of sustainable loss prevention policies based on the collaboration between insurers, regulators and governments, in order to support families and SMEs in adopting adaptation and risk reduction measures. Finally, the creation of an integrated ecosystem with shared governance and open data that would ensure there is systemic resilience in the new climate normality.

Collaboration between the public sector and private business is often invoked but rarely implemented. Are there virtuous models that Europe should consider as benchmarks in terms of climate risk protection?

Partnerships between private entities and public bodies are essential to promote wellbeing, reduce inequalities and increase climate resilience. Generali has long collaborated with the United Nations Development Program to strengthen the financial resilience of vulnerable communities and MSMEs: together we develop research, tools and innovative insurance solutions, promoting holistic resilience solutions that combine risk transfer and risk management.