Climate change has disrupted the US natural hazard and fire insurance market, GlobalData says, with premiums no longer covering sums paid out.

The US insurance market received $US58 billion ($78.69 billion) in fire and natural hazard premiums in 2020, while it paid out $US59 billion ($80.05 billion) to address severe weather events across the country, including wildfires in California, hurricanes in the south and severe thunderstorms in the Midwest.

This problem is likely to be replicated around the world, such as in areas at similar fire risk in Australia or places vulnerable to flooding, analyst Ben Carey-Evans says.

“The immediate concern for the insurance industry and people living in areas of high risk is whether they are becoming uninsurable,” Mr Carey-Evans said. “This could be disastrous for homeowners, who will have to take on the risk themselves and are likely to see the value of their homes plummet.”

A recent United Nations Intergovernmental Panel on Climate Change report warned of 'code red for humanity' with increasingly extreme heatwaves, droughts and flooding becoming the norm over the next decade.

This indicates the current trend of increased pay outs is likely to continue at an unsustainable level, GlobalData says in its Climate Change and its Impact on Insurance Market – Thematic Research report.

“The increased need for climate change-related insurance is a major challenge for the insurance industry,” Mr Carey-Evans said. “The increase of severe weather events will lead to more claims and the premium levels required to cover this increased risk could make large areas of land and the properties that occupy it uninsurable.”

The ability of customers to keep up with “ever-increasing premiums to cover the anticipated escalation in claims over the next decade is questionable” in the US, the biggest natural hazard & fire insurance market in the world for both incoming premiums and outgoing claims, GlobalData says.

Mr Carey-Evans says climate change action is now an essential part of any insurer’s overall strategy as ever-increasing severe weather events around the world highlight how important introducing change is to the industry.