UK — TheCityUK, in collaboration with insurer Marsh, published a report addressing the difficulties of insuring homeowners and businesses against the financial impact of extreme weather events. The report warns of increasing protection gaps in insurance coverage due to the growing frequency and intensity of events like wildfires and floods.

The finance lobby group stated: "Traditional actuarial methods – the basis for insurance pricing – assume the underlying probability of loss is broadly stable year to year." The organization noted: "That assumption is becoming less reliable as climate hazards intensify, undermining the confidence with which insurers model expected future losses." The report characterized the challenges of pricing climate risk as "not simply a sectoral issue, but a foundational concern for bankability, investability, and orderly economic activity".

Economist Swati Dhingra, an independent member of the Bank of England's monetary policy committee, discussed related economic effects. Dhingra stated: "Chocolate alone contributed roughly 1 percentage point to UK food inflation in 2025, reflecting a surge in cocoa prices driven largely by extreme heat in west Africa and the fact that chocolate accounts for close to 6% of the UK food basket."

Dhingra also stated: "Monetary policy remains essential for anchoring inflation expectations and preventing temporary price shocks from feeding into broader wage and price-setting, but it is a blunt instrument for dealing with relative-price shocks arising from climate change, energy markets or the green transition."

An analysis by the Energy and Climate Intelligence Unit found that 13% of UK food imports in the previous year originated from countries with the lowest climate resilience and highest exposure to extreme weather. Specific examples of these imports included rice from India, soft and citrus fruits from South Africa, Peru, and Egypt, coffee from Vietnam and Brazil, bananas from Colombia and Ecuador, and tea from Kenya. The unit calculated that agricultural laborers in the 15 most climate-vulnerable nations collectively experienced 216 billion lost hours due to heat stress in 2024.

Why It Matters

The report from TheCityUK and Marsh highlights how intensifying climate hazards are undermining traditional insurance pricing models, leading to growing protection gaps for UK homeowners and businesses. This situation is affecting the reliability of insurance coverage and creating broader economic concerns for financial stability and investment.

The economic impact of climate-related events extends to specific consumer goods, as demonstrated by the rise in chocolate prices due to extreme weather affecting cocoa production. The reliance of the UK on food imports from climate-vulnerable countries further exposes its economy to global climate risks, potentially affecting supply chains and contributing to inflation.