Information for regulated firms on how physical risks from climate change, such as flooding, may impact the property insurance and mortgage markets and how we can help.
Climate change is already affecting UK financial services.
The Environment Agency estimates that 6.3 million properties in England are at risk of flooding. By 2050, that could rise to 8 million.
Annual flood damage in the UK is estimated to cost £3.3 billion and could rise to £4.5 billion by 2050, according to the Climate Change Committee.
Additionally, 346,200 home insurance policies were placed into the Flood Re scheme in 2024/25 – a 20% increase on the previous year.
These climate-related changes are creating real challenges for firms, consumers and financial markets.
The related risks mean financial services firms need to think about climate adaptation and resilience. Climate adaptation means taking action to prepare for the impacts of climate change. Climate resilience means being able to anticipate, respond to, and recover from those impacts. In simple terms, adaptation is what firms do. Resilience is the resulting ability to cope and recover.
As physical climate risks grow in frequency and severity, they can affect firms' ability to operate, manage risk and deliver essential financial services – with direct consequences for consumers, market integrity and competition.
Physical climate risks fall into two broad categories, as defined by the International Sustainability Standards Board (IFRS S2):
- Acute risks – sudden, event-driven disruptions such as floods, wildfires, storms and heatwaves.
- Chronic risks – gradual, longer-term shifts such as rising sea levels, sustained temperature increases and changing rainfall patterns.
Both types can affect financial services firms in practical ways – damaging assets (from offices and data centres to investments and collateral), disrupting operations and infrastructure, and increasing costs. How significant these impacts are will depend on where a firm operates and which sectors it is exposed to.
We have a direct interest in how firms and markets adapt to these risks:
- Consumer protection: Consumers’ ability to access and afford products like insurance and mortgages on fair terms and at fair value may be affected.
- Market integrity: Markets may struggle to price risk accurately.
- Competition: Competition may be affected where access to financial services, such as property insurance, is uneven.
The risks we have identified
We have identified five key risks to consumers and markets from physical climate change:
Our work so far
Insurance
We have reviewed policy wording on key risks including flood and storm damage. Our 2025 review of home and travel claims handling highlighted the importance of clear policy information, helping consumers understand what is and is not covered, and delivering fair and transparent outcomes when customers make a claim. We are also supporting the Association of British Insurers' work on storm claims.
Mortgage lending
We have undertaken multi-firm work with lenders to understand how climate risk may affect lending decisions. We also sought wider market feedback through the 2025 Mortgage Rule Review Discussion Paper, and published a summary of responses in our Feedback Statement.
Climate Financial Risk Forum
We co-convene the industry-led Climate Financial Risk Forum (CFRF) with the Prudential Regulation Authority. The forum aims to enhance the financial services industry's ability to manage climate-related risks and opportunities through strategic risk management.
More widely, we are engaging with government and other regulators on how markets may evolve in response to climate-related risks and wider policy developments, including flood management.
What firms should consider
Tools and data to support climate risk assessment are continuing to develop. For instance, the CFRF has published guidance on topics including adaptation, risk management, and data on climate-related risks to properties, with further outputs due in early 2027. However, challenges remain.
How we can help
Climate adaptation is an evolving area. We want to work with firms to understand emerging risks and challenges and support effective approaches to managing climate-related impacts. We offer a range of ways to engage with us and access support:
