Global supply chains are increasingly exposed to climate-related disruptions, revealing protection gaps in re/insurance and underscoring the need for stronger adaptation, improved data, and coordinated public–private governance, according to a recent report by Stockholm Environment Institute (SEI).
Climate-related disruptions of international supply chains pose a major systemic risk. In Europe, for example, the 2021 floods in Germany and Belgium paralysed logistics and manufacturing, while droughts in southern Europe in 2022 reduced harvests and strained water supplies.
Dr. Mikael A. Mikaelson, Policy Fellow at SEI, said, “Climate shocks are now driving supply-chain shocks, cascading through interconnected networks rather than remaining isolated disasters. As local weather extremes ripple through interdependent systems, they can quickly become global shortages and delays that threaten economic security.”
Insurance and reinsurance, the financial mechanisms that typically absorb these shocks, are being tested by the increasing complexity, frequency, and severity of climate hazards. As insurers retreat from high-risk geographies and sectors, the burden of loss increasingly shifts to public budgets, enterprises, and households.
“Climate risk is becoming systemic faster than insurance systems can adapt – and when losses can no longer be diversified, insurance stops working as designed,” added Mikaelsson.
While innovative solutions, such as parametric products, Contingent Business Interruption (CBI) cover, and resilience-linked assessments, provide useful tools, they remain limited in scope and reliability, the report said.
Insurance coverage also remains narrowly focused on assets and direct damages, excluding slow-onset, indirect, and social dimensions of climate risk. Climate-related impacts on human health and productivity among supply-chain workers are particularly under-recognised.
The report found that structural and technical limitations – including reliance on historical data, incomplete climate-adjusted modelling, and fragmented risk metrics – undermine insurers’ ability to anticipate systemic exposure. There is a clear need for harmonised standards and forward-looking, probabilistic models.
Short-term underwriting cycles and annual repricing further constrain insurers’ ability to support long-term adaptation, as the focus on immediate solvency and profitability conflicts with the multi-decadal nature of climate risk.
Additionally, risks to labour in supply chains are largely invisible to current life and health insurance systems, particularly for physically exposed roles in agriculture, construction, and logistics. Workers in such roles often fall outside formal insurance systems, and even when insured, climate-related illness, productivity loss, or mental health impacts are rarely recognised or compensated.
The report emphasised that without substantial changes to business models, regulation, and public–private coordination, the sector risks undermining stability by amplifying systemic climate stress.
“Insurance alone cannot manage systemic climate risk. Without stronger adaptation, better data, and coordinated public–private governance, risk transfer will increasingly fail where resilience is needed most,” Mikaelson concluded.
