Insurers and Banks Adjust Pricing as Climate Risks Mount

Günther Thallinger, a management board director at Allianz SE, said certain locations and perils can no longer be covered the way insurers would like. “We cannot help it,” he said in an interview. Heat, floods, storms and wildfires could become so frequent they challenge traditional models. “Risk-adequate pricing would not be affordable any longer.”

The warning comes as millions of Europeans endure some of the highest temperatures ever recorded. Researchers at World Weather Attribution estimate June temperatures ran 5C to 12C above seasonal averages across France, Germany, Italy, Spain and southern England. Europe is heating up faster than other continents.

Insurers are the corner of finance responding fastest, said Sarah Kapnick, JPMorgan Chase & Co.’s global head of climate advisory. Wherever assets are exposed, insurance prices “are going up,” she said. The stresses today will only get worse: a heat wave ten years from now will be over 40C and keep going.

Banks are starting to follow. In Spain, where the temperature hit a June record of 43C, BBVA SA is adjusting loan prices for corporate customers based on their exposure to global warming. Elvira Calvo, the bank’s head of sustainability business transformation, said the sectors being targeted are agriculture, real estate, leisure, utilities and infrastructure. Retail clients are next.

ING Group’s global head of macro, Carsten Brzeski, said in a client note that heat waves represent a “new downside risk” to the region’s economic growth. He estimates accumulated losses of 0.8% of GDP by 2029 from tourism, productivity and supply chain disruption.

Allianz is now trying to help customers adapt so they don’t lose coverage. Thallinger declined to name which sectors are most at risk, saying it depends on individual clients and their attitude toward addressing the problem.

JPMorgan’s Alpha Score sits at 57 (Moderate), BBVA at 68 (Moderate) and ING at 75 (Strong). The gap reflects differences in how far each bank has integrated climate risk into pricing models. BBVA’s move to adjust corporate loan rates is a tangible step that its peers are still evaluating.

The question for insurers and banks is whether pricing can keep up with the rate of change. This week’s European heat wave is a reminder that the gap between what is insurable and what is already happening can shrink faster than models assume.