Your insurance company just got a green light to ignore climate risks. On October 21, 2025, US banking regulators quietly withdrew climate-risk principles that guided how financial institutions—including insurers—assess environmental threats to their investments.
The move affects more than banks. Insurance companies manage trillions in investments, and many follow banking regulations when making portfolio decisions. Without federal climate risk guidelines, your insurer can now downplay hurricane frequency, wildfire severity, and flood risks when choosing where to put your premium dollars.
That decision could come back to hit your wallet in three ways: higher premiums when climate disasters exceed expectations, coverage denials in high-risk areas, or policy cancellations after catastrophic losses. Here’s what changed and how it affects your coverage.
What Climate Risk Principles Actually Did
Climate risk principles weren’t environmental activism. They were financial protection.
The guidelines told banks and financial institutions—including insurance companies that follow similar frameworks—to assess how climate change could damage their investments. A coastal real estate portfolio facing sea level rise? That’s a financial risk. Bonds in companies dependent on fossil fuels? Long-term liability exposure.
Insurers used these principles to:
- Stress-test investment portfolios against climate scenarios like 2°C warming or increased hurricane frequency, helping them avoid billions in unexpected losses.
- Price policies accurately. Better climate data = better risk models = fairer premiums.
- Maintain reserves. Knowing climate risks meant setting aside enough cash to pay claims after megadisasters.
- Avoid stranded assets like coal company bonds that could become worthless as regulations tighten.
The Federal Reserve and other regulators viewed climate risk as a financial stability issue, not a political one. When wildfires cost insurers $15 billion in California alone (2017-2018), that wasn’t ideology—that was math.
Now those guidelines are gone. Insurers can treat climate risk as optional.
Why This Hits Your Insurance Company’s Wallet (And Then Yours)
Insurance companies are investors first, risk-takers second. They collect your premiums and invest that money in stocks, bonds, and real estate while waiting to pay claims. Those investments need to stay profitable for decades.
Without climate risk assessment requirements, insurers might:
- Underestimate future losses from extreme weather, leading to insufficient reserves when megadisasters strike.
- Invest in climate-vulnerable assets without proper risk analysis—like coastal properties facing accelerating sea level rise or energy companies facing regulatory crackdowns.
- Face unexpected portfolio losses when climate events destroy asset values faster than predicted.
When insurers lose money on investments, they make it back one way: your premiums go up. Or they exit markets entirely, like the 60,000 Hawaii auto policies canceled in 2024 when carriers couldn’t maintain profitability.
The math is simple. Insurers that ignore climate risks today pay bigger claims tomorrow. Then you pay higher premiums—or lose coverage completely.
3 Ways This Regulatory Shift Changes Your Coverage
The withdrawal creates immediate uncertainty in how insurers operate. Here’s what could change:
| Impact Area | Before Withdrawal | After Withdrawal |
|---|---|---|
| Investment Strategy | Required climate risk analysis | Optional—insurers choose their own standards |
| Risk Modeling | Federal guidance on climate scenarios | No standardized approach |
| Disclosure | Expected transparency on climate exposure | Voluntary reporting only |
1. Premium Volatility Increases
Insurers without climate risk frameworks can’t predict future losses accurately. That uncertainty shows up as bigger premium swings. One year your rate stays flat. Next year it jumps 40% after an unexpected disaster season.
2. Coverage Gaps Widen
When insurers can’t assess climate risks properly, they either charge extreme premiums in vulnerable areas or refuse coverage entirely. Already happening in California wildfire zones and Florida coastal regions.
3. Market Exits Speed Up
Carriers that underestimate climate exposure lose money fast. Their response? Leave the market completely. Hawaii’s DTRIC situation could repeat nationwide without proper risk assessment tools.
State Regulators Fill the Federal Gap
Here’s the twist: Insurance is primarily state-regulated, not federal. While banking regulators withdrew climate principles, state insurance departments can still require climate risk disclosures.
Some states already act independently:
- California requires insurers to disclose climate risk in rate filings and recently passed laws mandating coverage in wildfire zones.
- New York asks insurers to explain how climate change affects their business models and reserves.
- Washington passed legislation in 2024 requiring climate risk analysis for all admitted insurers.
But not all states will step up. Residents in states without strong insurance regulators could face bigger coverage problems as insurers drop climate risk assessment without federal pressure.
The result? Your ZIP code determines whether your insurer considers climate risks or ignores them. That’s a problem when hurricanes and wildfires don’t respect state borders.
What You Should Do Right Now
The regulatory change doesn’t affect your policy tomorrow morning. But it creates long-term uncertainty you can prepare for today.
1. Check your insurer’s climate risk practices.
Visit your insurance company’s investor relations page. Look for:
- ESG (Environmental, Social, Governance) reports
- Climate risk statements in annual reports
- Membership in climate risk initiatives like the UN Principles for Sustainable Insurance
Companies still committed to climate risk analysis will advertise it. Those going silent might be backing away.
2. Review your coverage limits against climate scenarios.
Does your homeowners policy cover 100% replacement cost after a wildfire? Do you have flood insurance even if you’re not in an official flood zone? Climate risks expand faster than FEMA maps.
3. Diversify across multiple carriers if possible.
Don’t put all your insurance needs with one company. If your carrier exits the market suddenly (like DTRIC in Hawaii), you’ll scramble for alternatives. Spread home, auto, and umbrella policies across carriers for stability.
4. Monitor your state insurance department’s actions.
Strong state regulators will fill the federal gap. Weak ones won’t. Know which you have by checking your state insurance department’s website for climate risk initiatives or consumer protection rules.
Frequently Asked Questions
Does this mean my insurance company will stop caring about climate change?
Not necessarily. Many insurers maintain climate risk analysis because it makes financial sense, not because regulators force it. Companies with large coastal or wildfire exposures can’t afford to ignore climate data—their survival depends on accurate risk models. But smaller insurers or those in less vulnerable markets might reduce climate focus without federal requirements pushing them.
Will my premiums go down if insurers don’t have to follow climate risk rules?
Unlikely. Insurers price policies based on actual losses, not regulatory requirements. If anything, premiums could rise faster if carriers underestimate climate risks and face unexpected disaster costs. Remember: insurers that lose money on bad investment decisions or inadequate reserves pass those losses to policyholders through higher rates.
Should I switch insurance companies because of this regulatory change?
Not immediately, but research your carrier’s climate risk practices. Check their annual reports, ESG disclosures, and public statements about environmental risk management. Insurers that maintain robust climate analysis (even without federal mandates) show stronger long-term financial stability. If your carrier goes silent on climate risks, that’s a yellow flag worth monitoring—but not a reason to panic and switch today.
How does this affect my home insurance in a wildfire or hurricane zone?
High-risk areas could see bigger premium increases or more coverage denials. Without standardized climate risk assessment, insurers in vulnerable regions might overprice policies (charging excessive premiums out of caution) or underprice them (leading to market exits after major losses). California and Florida residents already face this instability—the federal withdrawal might accelerate these trends in other coastal and wildfire-prone states.
The Bottom Line: Your Insurer’s Climate Blind Spot
US banking regulators’ withdrawal of climate-risk principles won’t change your insurance overnight. But it removes federal pressure for insurers to assess environmental risks systematically.
The long-term effect? More insurers might ignore climate data when making investment and underwriting decisions. That creates two problems for you: higher premiums when unexpected disasters strike, and coverage gaps when carriers exit markets they’ve mispriced.
Your best protection is information. Know your insurer’s climate risk practices. Understand your coverage limits in the context of changing weather patterns. And watch your state insurance regulator—they’re now the main defense against insurers that choose to ignore environmental risks.
The federal government stepped back. Your state might fill the gap. Or it might not. Either way, you’re the one holding the policy when the next storm hits.