When catastrophe strikes and insurance falls short: why resilient companies are rethinking risk

Randy Sadler (pictured), of CIC Services, looks at how catastrophic risks are changing.

What happens when the worst-case scenario hits – and your insurance policy doesn’t?

More companies are facing that question as catastrophic events grow more frequent, more interconnected and, increasingly, more uninsurable. Several macro forces are behind this shift. Increased environmental volatility is contributing to more severe and unpredictable weather-related disasters.

Factors such as shifting weather patterns, warming oceans and longer wildfire seasons are creating conditions for extreme events to occur more frequently and with greater intensity. The rise of interconnected digital systems means that a single cyberattack can cripple an entire supply chain.

Geopolitical instability, from trade wars to regional conflicts, introduces volatility that spills across borders and industries. And in the courtroom, social inflation and massive jury awards are pushing liability exposures to new extremes. These overlapping trends are making catastrophic risks more complex, harder to quantify and less attractive for insurers to underwrite.

From wildfires and cyberattacks to supply chain breakdowns and litigation exposure, the risks that keep business leaders up at night are no longer theoretical. They are real, they are multiplying and traditional insurance is often falling short.

The challenge isn’t simply the rising frequency of catastrophic loss; it’s the shrinking reliability of the insurance markets meant to absorb them.

Catastrophic risks are changing

In 2023, global insured losses from natural catastrophes totaled $118 billion according to the Swiss Re Institute. It marked the fourth consecutive year with insured losses exceeding $100 billion. But property damage tells only part of the story. Catastrophic events now extend far beyond weather, encompassing digital infrastructure, public health, legal systems and even geopolitics.

Several forces are reshaping the nature of catastrophic loss:

• Climate volatility is fueling more severe and less predictable natural disasters, driven by rising global temperatures, altered weather patterns and more frequent extreme weather events. The Intergovernmental Panel on Climate Change (IPCC) warns that previously rare phenomena are becoming regular occurrences.
• Cyberattacks are growing in scale and scope as more business operations move online. The digitisation of everything from manufacturing to finance creates a broader attack surface, while the interconnectedness of global supply chains amplifies the downstream effects of a breach.
• Litigation trends such as nuclear verdicts and social inflation are driving liability risks into uncharted territory. The median jury award in product liability cases nearly doubled between 2019 and 2023, according to the US Chamber of Commerce.
• Economic and geopolitical instability are introducing non-traditional risks into every sector. Wars, trade disruptions, inflation shocks and regulatory shifts now have cross-border ripple effects that few businesses can afford to ignore.

These risks aren’t isolated. Increasingly, they are interconnected and systemic. That makes them harder to model, price and insure, especially within a system built on historical data and actuarial predictability. The result is an insurance framework that lags behind the speed and scale of modern catastrophe.

The market response: higher premiums, lower protection

Insurers, faced with their own solvency pressures, are retreating from high-severity and hard-to-quantify risks. According to Marsh's Global Insurance Market Index, global commercial insurance prices rose for the 25th consecutive quarter in Q1 2024. Property insurance led the increase, jumping 10% on average. Meanwhile, capacity in key sectors shrank.

It’s not just price. It’s structure. Exclusions are broader. Sublimits are tighter. And policies that once provided peace of mind now contain layers of ambiguity. Take cyber coverage. According to Fitch Ratings, US cyber insurance premiums fell 6% in 2024 due to weaker pricing and fewer policies in force, a sign that coverage has tightened. Industry experts also note that many policies now impose stricter underwriting requirements, including higher deductibles and more precise definitions of covered cyber events, which are reshaping both the cost and scope of protection.

Similarly, in the property market, companies operating in disaster-prone regions face non-renewals or price increases of more than 40%. Property insurance costs have surged in disaster-prone regions. A study found that average home insurance premiums rose more than 30% between 2020 and 2023, with disproportionate spikes in areas at high risk of hurricanes, wildfires or floods. In some cases, insurers have exited entire geographies. That leaves companies with a difficult reality: either pay exponentially more for less protection or go without.

The danger of assumptions

The true exposure often lies in what companies assume they are covered for. One high-profile example: In 2021, the Texas power grid failure caused more than $130 billion in economic damage. Many companies filed business interruption claims only to discover that damage from utility failure was excluded unless there was direct physical damage to their premises.

Similarly, when Colonial Pipeline was hit by a ransomware attack, the economic fallout was widespread, but coverage disputes emerged around whether cyber policies would cover the full scope of losses, especially those tied to business interruption.

These cases underscore a hard truth: insurance is only as strong as the language it contains – and in catastrophic scenarios, that language is often tested in ways no one anticipates.

A shift in mindset: from coverage to resilience

As a result, more companies are rethinking how they structure their approach to risk. The question is no longer just, “What’s the premium?” It’s “What happens if the market fails us?”

True resilience comes from planning for volatility, not just insuring against it.

That shift is driving a broader risk architecture among forward-thinking companies:

• Diversified financing mechanisms, including risk retention strategies
• Scenario modelling and stress-testing for extreme events
• Operational continuity planning, not just policy coverage
• Engaging risk expertise across finance, legal and operational departments

This does not mean abandoning insurance. It means recognising that insurance, especially for catastrophic risks, is just one piece of a far larger puzzle.

The quiet role of alternative strategies

Some companies have turned to self-insurance and other alternative risk transfer mechanisms as a way to reclaim control over volatility. One such option is captive insurance, where companies set up their own licensed insurance entities to finance specific risks.

Captives are not new, but their role is quietly evolving. Once viewed primarily as a tax strategy or tool for niche industries, they are now being integrated into the enterprise risk management framework of large and mid-sized companies across nearly every sector. They are used to supplement traditional coverage, provide protection for excluded perils or create buffers for hard-to-place risks.

But this article is not about captives. It’s about acknowledging that the commercial insurance market, as currently structured, is not equipped to address every catastrophic scenario. And in a world where catastrophe is no longer rare, businesses can’t afford to outsource their risk strategy entirely.

Risk management as a strategic function

The companies best positioned to weather the next systemic shock won’t just be the ones with good policies. They’ll be those with strong foresight.

Consider the businesses that survived the Covid-19 pandemic with minimal disruption. Many had robust business continuity plans that had been tested prior to the crisis. Others had alternative risk structures in place that gave them liquidity when traditional claims processes lagged.

These examples highlight a critical lesson: resilience is not a reaction. It’s a choice made in advance.

Looking ahead

The insurance industry is not failing. It is evolving under pressure. But that evolution is leaving growing gaps that companies must fill on their own. Catastrophic risk is no longer a black swan. It is part of the operating environment.

Being insured is no longer enough. The companies that lead through crisis will be those who built a strategy for when – not if – the coverage falls short.

And that starts by asking a different kind of question.

Not, "What do we insure?" but "What can we withstand?"

Randy Sadler started his career in risk management as an officer in the US Army, where he was responsible for the training and safety of hundreds of soldiers and more than 150 wheeled and tracked vehicles. He graduated from the US Military Academy at West Point with a BSc in international and strategic history with a focus on US–China relations in the 20th century. He has been a principal with CIC Services for seven years. In this role, he consults directly with business owners, CEOs, and CFOs on the formation of captive insurance programmes for their businesses. CIC Services manages more than 100 captives. He can be contacted here: randy@cicservicesllc.com

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