Climate Risk, AI, and the Profitability Challenge Facing Insurers
Wildfire losses have turned property insurance from a steady profit engine into an existential risk, and the key to restoring predictability to underwriting is described by Accenture
Accenture’s Predictions for the Insurance Industry in 2025 highlights five transformative forces: an aging population, an existential crisis in property insurance, geopolitical instability, AI-driven workforce change, and the long-overdue modernization of core technology. Of these, the second and fourth — climate-driven property losses and the rise of AI — are converging in ways that will determine whether insurers can achieve profitable growth in the years ahead.
Wildfire as the Existential Climate Risk
Kenneth Saldanha of Accenture notes that property insurance — roughly 30% of global P&C premiums — is at a breaking point. Rate increases that once fueled growth have been eclipsed by the volatility of climate-linked catastrophes. In the U.S., wildfires illustrate this regime shift with brutal clarity.
California homeowners underwriting was profitable for decades until 2017–2018, when catastrophic fires drove combined ratios above 200%. Since then, results have oscillated, but the baseline has shifted: volatility now overwhelms historical averages. A single wildfire event can exceed $40 billion in insured losses, rivaling hurricanes but with far less predictability.
This is not a gentle trend line — it is a structural break. Climate change, urban expansion into the wildland-urban interface, and aging infrastructure have created a new class of tail risks that legacy models struggle to price.
From AI for Claims to AI for Risk
Most commentary about Artificial Intelligence in insurance focuses narrowly on claims automation and fraud detection. But as Accenture’s earlier research with equity analysts confirmed, the true profit lever lies upstream: using advanced data and AI for better underwriting decisions. That is where insurers can meaningfully bend the combined ratio.
Traditional catastrophe models are largely statistical, backward-looking, and index based. They flatten complexity into categories like “High” or “Moderate” risk. That’s useful for compliance reporting, but not for capital allocation.
What carriers need is what Accenture calls “reinvention”: intelligence that transforms noisy environmental data into a consistent, predictive signal for underwriting, reinsurance, and investment.
Actionable Intelligence: Physical Risk 2.0
This is where new InsurTech approaches matter. Athena Intelligence, for example, refines the earth’s essential data into synthetic, high-fidelity risk profiles it calls Voice of the Acre®. These profiles quantify ignition potential, burn probability, and exposure in ways that can plug directly into underwriting systems, portfolio management tools, or reinsurance treaties.
The benefit is not just granularity but consistency. As Andrew Eil, a veteran of climate finance and an early investor in Athena, puts it: “Most climate risk tools still live in a 1.0 world. They tell you the world is dangerous, but not what to do about it. Athena bridges the gap between science and the balance sheet. In a volatile environment where historical averages don’t hold, consistency is gold.”
For insurers, reinsurers, and ILS investors, this shift from static indexes to actionable intelligence is the difference between reacting to volatility and managing it.
Toward Profitability in a Volatile Era
Accenture’s optimism — that industry revenues will top $7.7 trillion in 2025 — comes with a caveat: whether that growth is profitable depends on how insurers handle climate risk. Wildfire losses, regulatory scrutiny, and reinsurance withdrawals are testing the industry’s resilience.
The path forward is not retreat from property, but reinvention of how property risk is measured, priced, and mitigated. That means embracing AI not as a cost-cutting tool, but as a profitability engine. It means shifting from disclosure-driven risk reports to operational intelligence. And it means building partnerships with innovators who can translate landscape-level science into underwriter-ready data.
Accenture’s optimism — that industry revenues will top $7.7 trillion in 2025 — comes with a caveat: whether that growth is profitable depends on how insurers handle climate risk. Wildfire losses, regulatory scrutiny, and reinsurance withdrawals are testing the industry’s resilience.
The path forward is not retreat from property, but reinvention of how property risk is measured, priced, and mitigated. That means embracing AI not as a cost-cutting tool, but as a profitability engine. It means shifting from disclosure-driven risk reports to operational intelligence. And it means building partnerships with innovators who can translate landscape-level science into underwriter-ready data.
Insurers who make this leap will not only protect profitability — they will shape the next era of property insurance. Those who don’t may find that climate volatility, not competition, is their greatest existential risk.
Athena Intelligence is a data vendor with a geospatial, conditional, profiling tool that pulls together vast amounts of disaggregated wildfire and environmental data to generate spatial intelligence, resulting in a digital fingerprint of wildfire risk.
Clients include financial services companies, insurance, electric utilities, and communities. Data for property underwriting is currently in use with property insurance thought leaders. Athena provides the probabilities of a structure being inside the perimeter of a wildfire, on a pay-for-lookup basis.
Reach out to me at Elizabeth@AthenaIntel.io and follow us here, on LinkedIn or Energy Central.
