This is the fifth part in a series of six columns from WTW’s Thinking Ahead Institute exploring a new risk management framework for investment professionals, or what it calls ‘risk 2.0’. See other parts of the series here.
In our previous thought piece, we considered how risk 1.0 hadn’t really protected us when we needed it most. Looking at the past is informative but ultimately what matters is how the risk 2.0 mindset and practice might help to address potential future risk events. With this in mind, we explore two potential future risk scenarios and describe how each would be interpreted and managed through a risk 1.0 lens and a risk 2.0 lens.
Uninsurable future THROUGH A risk 1.0 lens
The ‘uninsurable future scenario’ is driven by an escalation in insurance premiums (in particular home insurance but also commercial insurance) to levels that are unaffordable. The increasing frequency and severity of climate-related disasters – such as floods, wildfires, and storms – are treated as external shocks that disrupt insurance markets. These events lead to higher claims, which in turn drive up premiums and reinsurance costs. As insurers respond by withdrawing coverage from high-risk areas, the market adjusts through price signals and policyholder behaviour. The assumption is that if individuals and governments act rationally – by relocating, investing in mitigation, or subsidising insurance – market equilibrium can be restored.
Risk is treated as a technical problem solvable through better modelling, pricing, and regulation.
Uninsurable future THROUGH A risk 2.0 lens
With a risk 2.0 mindset, the ‘uninsurable future’ scenario is driven by a convergence of climate-induced hazards, systemic governance failures, and economic pressures that collectively push regions past a tipping point where insurance becomes unavailable, inaccessible, or unaffordable. Root causes include rising greenhouse gas emissions, sea-level rises, poor land-use planning, and socioeconomic inequality, which increase exposure and vulnerability to extreme weather events. As disasters grow more frequent and severe, traditional insurance models – based on historical data – struggle to price risk accurately. Reinsurance costs surge, data gaps persist, and insurers begin withdrawing from high-risk markets, leaving millions of properties without coverage. In Australia alone, over 520,000 homes are projected to be uninsurable by 2030[1].
The first-order impacts are immediate and severe: households face delayed recovery, rising debt, and mental health challenges. Property markets destabilise as uninsurable homes lose value and become difficult to sell or finance. This directly affects the banking sector, which relies on insured assets to secure mortgage lending. Without insurance, banks face increased credit risk, reduced collateral value, and potential defaults – especially in disaster-prone areas. These vulnerabilities can ripple through the broader financial system, undermining investor confidence and asset stability. Governments, meanwhile, are forced to act as insurers of last resort and absorb uninsured losses, straining public budgets and increasing debt burdens. The US National Flood Insurance Program, for example, is already over $20 billion in debt.
As insurance becomes inaccessible, inequality deepens: wealthier individuals and businesses relocate or self-insure, while vulnerable populations remain exposed. Feedback loops emerge as migration to cheaper, high-risk areas increases exposure, further driving uninsurability. These dynamics link to other systemic tipping points, such as ecosystem degradation and loss of space-based climate monitoring, which further erode resilience and risk modelling capabilities. The scenario underscores the urgent need for transformative approaches to climate adaptation, financial regulation, and collective risk-sharing to prevent cascading failures across social, economic, and ecological systems.
Food crisis through a risk 1.0 lens
Scanning historical data suggests local food crises are possible, but tend to be in low-income countries and to follow periods of drought. They are generally addressed by humanitarian relief efforts and have no discernible impact on asset prices. Food problems have been seen in high-income countries during times of war (rationing) or pandemic (temporary unavailability during COVID).
Looking forward, it would be reasonable to assign a higher probability to a disappointing harvest in a major breadbasket region of the world (e.g., climate change-induced drought, or war continuing in Ukraine). However, expectations would suggest high income countries would be able to afford to import the food they require at the higher prices. There could be a temporary negative impact on asset prices from a temporary spike in inflation (driven by food prices), but significant or lasting economic damage is highly unlikely. We therefore assign a low probability to this scenario, and a low to moderate adverse impact on asset prices.
Food crisis through a risk 2.0 lens
The global food system employs complex global supply chains, and “there are unprecedented levels of market concentration throughout global agrifood systems”[5]. A few companies control seeds, chemicals, pharmaceuticals, machinery, fertilisers, livestock genetics, food processing and commodity trading, and have potentially gained “market power”[6]. We would describe it as highly efficient but with very low resilience. It is highly dependent on the continued availability of fresh water, and continued deforestation (which is likely to disrupt the water cycle, let alone over-drawing from aquifers). Supply assumes, and is dependent on, the independence of weather across the world’s breadbasket regions.
Climate change challenges this assumption and we suggest that correlated poor harvests are now possible, if not probable just yet. Climate change also threatens to tip the Amazon from forest to savannah, which would remove a major rainfall source for a large part of South America, and likely interrupt rainfall patterns globally. In turn, this could strand existing agricultural infrastructure assets. The system is also exposed to any disruption in global shipping (Suez and Panama canal blockages/droughts, and war). Unlike the GFC, governments will not be able to bail out the food system by issuing “future food”. There is likely to be widespread social unrest, and possible direct action against the agri corporates and possibly the financial firms that fund them.
Given the lack of resilience in the food system, and the lack of action to address climate change, we are forced to conclude that – in the absence of new action – the probability of a food crisis will rise through time, until it becomes a near-certainty. At that point, the risk to financial asset values is very high.
“Safety is something that happens between your ears, not something you hold in your hands.”
– Jeff Cooper
We may be guilty of drawing boundaries around specific sectors in this piece, but the ultimate purpose is to show that a risk 2.0 lens allows those boundaries to dissolve as we recognise our hyper-connected global system.
The first step in answering “can risk 2.0 save us from crises yet to come?” is realising that while some crises carry a high probability, our awareness and preparedness can be radically improved.
There is no greater safety with risk 2.0, only better readiness.
Andrea Caloisi is a researcher at the Thinking Ahead Institute at WTW.
[1] UNU Institute for Environment and Human Security. 2023. Uninsurable future
[2] Total GDP losses after taking feedback loops through the financial and social system into account would be expected to be significantly larger (ie multiples of the estimate of direct losses)
[3] European Insurance and Occupational Pensions Authority. 2023. Policy options to reduce the climate insurance protection gap
[4] Aggarwal et al. 2023. Sigma – Restoring resilience: the need to reload shock-absorbing capacity
[5] IPES-Food (International Panel of Experts on Sustainable Food Systems). 2017. Too big to feed: Exploring the impacts of mega-mergers, concentration, concentration of power in the agri-food sector.
[6] FAO. 2022. The future of food and agriculture – Drivers and triggers for transformation. The Future of Food and Agriculture, no. 3. Rome. https://doi.org/10.4060/cc0959en
