Navigating insurance costs and premium uncertainty: how Altitude helps Private Equity and Infrastructure funds

As climate risks grow, is insurance becoming a strategic investment issue?

As global temperatures rise, the world is grappling with more and more disasters, from historic wildfires to unusually severe floods, earthquakes and storms. As disasters become unpredictable and unusually intense, both insurees and insurers will increasingly have to deal with soaring premiums and insurance deserts. Indeed, damages are predicted to be major. In France, for instance, the national reinsurance organism, “Caisse Centrale de Réassurance (CCR)”, estimates that disaster frequency could increase from 27% to 62% by 2050, depending on different climate scenarios.

These escalating climate events are therefore reshaping the insurance market in profound ways. But beyond current impacts, the future status of risk itself is becoming increasingly unpredictable. As a result, the long-term outlook of the insurance sector is hard to apprehend, though it is certain that insuring all risks will become more and more difficult.

In this context, insurance is becoming a strategic investment issue. Private Equity and Infrastructure funds must account for these shifts in their financial planning and risk assessments. To what extent can Altitude be used to help asset managers deal with insurance costs and premium uncertainty?

Why climate risk platforms like Altitude can’t predict insurance premiums with long-term climate scenarios? Understanding insurance pricing complexity

There are two main types of insurance that protect assets from climate-related risks:

• Property and casualty insurance, which covers structural damage
• Business interruption insurance, which compensates for income lost due to a disaster

Understanding how these are priced is key to grasping why long-term predictions of insurance premiums are not feasible, and why tools like Altitude, while helpful, cannot provide deterministic forecasts of future costs.

The volatility factor: why experience matters

The first element influencing insurance pricing is loss projection, which is the insurer’s estimate of the expected average loss under a policy. This projection forms the basis for calculating the gross insurance premium, known as the Average Annual Loss (AAL) – a financial indicator computed in Altitude.

However, two other elements significantly impact the final price. Contract parameters (such as deductibles, insured values and loss ratios), and experience. Experience, in this context, refers to how the client’s past claims influence future premiums.

For example, in the first year of a contract, the premium reflects average projected losses. But if a severe event occurs during that year, the premium may be adjusted upward for the next period as insurers seek to offset extra payouts. This introduces volatility into pricing, and it is this volatility that is especially difficult to anticipate.

With climate change increasing the intensity and unpredictability of extreme events, projecting this volatility over the long term becomes nearly impossible. Without a clear estimate of volatility, forecasting future premiums loses reliability.

The market cycle factor: pricing beyond climate

Pricing uncertainty also arises from economic and financial cycles not necessarily correlated to climate factors.

Insurance markets operate in cyclical phases known as “hard” and “soft” markets. After major disasters, insurers’ and reinsurers’ balance sheets are hit hard, reducing underwriting capacity. This triggers a hard market, characterized by limited supply and sharply higher premiums. Conversely, in soft markets, excess capacity drives premiums down.

This dynamic is governed by the law of supply and demand. For example, after Hurricane Andrew devastated parts of the U.S. in 1992, the resulting losses led to the insolvency of several insurers and led to a hard market phase. Predicting premiums over the long term requires forecasting not only physical risks but also market cycles, both of which are highly uncertain.

Premium forecasting: a multifactorial challenge

In summary, insurance premiums depend on a complex interplay of factors far beyond climate models. Experience, contract specifics and market fluctuations all play key roles.

So, does this mean asset managers cannot factor insurance premiums into their financial models? Not exactly. Instead, it means they must adjust their approach. For all reasons listed above, platforms like Altitude cannot reliably forecast premiums. Those that claim to do so often rely on shaky assumptions and their projections should be viewed with caution. However, Altitude provide asset managers key metrics to help them navigate uncertainty and understand exposure.

Altitude gives power back to asset managers to build resilient infrastructures and act on their future insurability

Average Annual Loss (AAL): a key metric to understand insurance exposure

While projecting future premiums cannot be done with a reasonable confidence interval, Altitude provides asset managers with crucial visibility on what’s at stake for their assets, along with actionable insights that will influence future insurability.

At the core is the integration of the Average Annual Loss (AAL) insurance metric, which forms the foundation insurers use to price coverage.

For now, assessing expected AAL via Altitude is the most advanced way to factor insurance considerations into financial planning. It’s important to keep in mind, however, that AAL reflects current market conditions and that premiums will vary depending on contract parameters and evolving risk profiles.

Indeed, a risk is only considered insurable if it meets the following three conditions:

1. The occurrence of the risk is random
2. The risk is measurable and quantifiable (in frequency and magnitude)
3. The risk is mutualisable (i.e. maximum and average losses must not be too large relative to the insurer’s capacity)

As seen earlier, these conditions become increasingly difficult to anticipate in the long term.

Physical Climate VaR: preparing for the financial impact of extremes

To enhance risk visibility, Altitude is developing a complementary metric to AAL: the Physical Climate Value-at-Risk (VaR), that captures potential financial losses from extreme climate events.

The VaR estimates the loss an asset manager could face in the event of a major climate disaster. This helps address the forecasting challenges faced by the insurance sector, revealing potential downside risks beyond average scenarios.

From risk awareness to action: recommendations and adaptation catalogue

These two financial metrics offer a strong understanding of insurance costs over a one-year horizon, and in fact reflect the same level of visibility insurers themselves have. But financial modeling alone is not enough. Asset managers can also act proactively on their insurance cost by demonstrating to insurers that they have taken measures to reduce their vulnerability, and thus future damages.

The most effective response to the challenges climate change poses to insurability is to adapt assets and make them more resilient to identified risks.

Altitude supports this by providing:

• Asset- and sector-specific recommendations to reduce risk and vulnerability
• A structured adaptation measure catalogue to guide implementation with technical detail

In practical terms, what we advise is to:

• Conduct a thorough climate risk assessment to identify specific exposures
• Review insurance policy to ensure adequate coverage
• Implement relevant adaptation measures to increase asset’s resilience and negotiate the insurance contract more effectively. By proactively implementing robust adaptation and mitigation measures, asset managers fundamentally transform their risk profile in the eyes of insurers. Demonstrating a track record of effective risk reduction positions them as a “preferred risk” and strengthens their negotiating power.

It’s important to keep in mind that adaptation doesn’t always mean large-scale construction projects. Sometimes, it’s about making smart, targeted investments that can make a real difference. For instance, in outdoor sectors such as construction and agriculture, straightforward operational adjustments such as shifting work hours during heatwaves, providing shaded rest areas and cooling breaks and using early warning systems for extreme heat, are easy to implement and require minimal investment. Despite their simplicity, these measures are highly effective in enhancing worker safety and productivity.

Can we say that Altitude helps asset managers reduce insurance premiums?

Yes, but the real question is less about reducing insurance premiums and more about preventing them from rising too high, potentially becoming prohibitive.

While we cannot say with certainty that Altitude will help reduce future premiums, for the reasons explained throughout this article, it helps ensure continued insurability through proactive risk management and adaptation. This, in turn, helps prevent premiums from escalating uncontrollably.

From risk intuition to risk clarity

With Altitude, asset managers become masters of their own risk. As uncertainty increases, it becomes harder to grasp exactly what risks are faced and what they mean for insurance strategies.

Altitude provides transparency on risk exposure and its connection to insurance pricing. It delivers actionable insights to adapt and reduce asset vulnerability.

This enables clients to:

• Understand their exposure
• Track changes in their risk profile over time
• Access the tools and knowledge to act on it

As climate risks reshape underwriting standards, being a “good risk” offers a strategic edge. Altitude equips asset managers with the information they need to assess insurability and move from intuition to clear risk visualization. This is essential both for strategic decision-making and for budgeting adaptation measures.