Households, lenders, governments and capital markets are absorbing more financial pressure.
Natural hazard risk is becoming a bigger factor in investment decisions as insurers reduce capacity, and the financial impact of climate-related events grows.
According to a report by Schroders Capital, investors are increasingly exposed to catastrophe risks across a wider range of asset classes, making it more important to understand how these risks are priced, transferred and managed rather than simply avoided.
Holly Turner, head of sustainable investment at Schroders Capital, said catastrophe risk has become a broader financial issue rather than one confined to the insurance sector.
As insured losses increase and insurance capacity tightens, risk is being passed on to households, lenders, capital markets, institutional investors and governments, creating new investment considerations.
The report said catastrophe models are now essential tools for pricing risk and allocating capital, but investors should not rely solely on model outputs.
Instead, they should assess how investment managers interpret model results, account for uncertainty and manage extreme risks.
Schroders Capital said markets that transfer catastrophe risk, including insurance-linked securities and securitisation, could offer attractive returns when pricing accurately reflects expected losses and uncertainty.
These markets also help spread risk across the financial system. The report also identified climate adaptation and resilience as growing long-term investment themes.
It said opportunities are emerging in infrastructure, real estate and private equity strategies that support more resilient assets and the development of technologies and services designed to reduce vulnerability to natural hazards.
According to the report, investors that combine catastrophe modelling with expert judgement, proprietary analysis and active portfolio management are likely to be better placed to manage downside risks and identify investment opportunities as natural hazard risks continue to evolve.