UK Insurers Warn Climate Risk Threatens Investment
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- TheCityUK, in a report with insurer Marsh, warned traditional actuarial pricing assumes stable loss probabilities — an assumption "becoming less reliable as climate hazards intensify" — leaving insurers facing growing "protection gaps" for floods and wildfires.
- TheCityUK argued the insurance pricing problem is "not simply a sectoral issue, but a foundational concern for bankability, investability, and orderly economic activity" across the wider financial system.
- Swati Dhingra, independent member of the Bank of England's MPC, cited chocolate alone contributing roughly 1 percentage point to UK food inflation in 2025 due to cocoa price surges from extreme heat in west Africa; chocolate accounts for close to 6% of the UK food basket.
- An Energy and Climate Intelligence Unit analysis found 13% of UK food imports last year came from countries least climate resilient yet most exposed to extreme weather, including rice from India, citrus from South Africa/Peru/Egypt, coffee from Vietnam/Brazil, bananas from Colombia/Ecuador and Kenyan tea.
- ECIU calculated agricultural labourers across the 15 most climate-vulnerable countries lost 216 billion hours to heat stress in 2024.
- Dhingra argued monetary policy is a "blunt instrument" for relative-price shocks from climate change, energy markets or the green transition, and governments may need targeted subsidies, price controls or temporary tax measures to cushion consumers.
- Dhingra warned that using higher rates to offset energy price spikes from geopolitical chaos — most recently the Iran war — raises the cost of investing in renewable alternatives that would insulate the UK from such disruption.
Why it matters: With 13% of UK food imports already sourced from climate-vulnerable regions and insurers pricing extreme weather as uninsurable risk, the Bank of England faces a trap: rate hikes to fight climate-driven inflation also increase the cost of green investment. Dhingra's argument forces fiscal authorities — not the MPC — to deploy targeted support.
