The Strategic Importance of GRC Amid Rising Natural Hazards

The recent publication by Swiss Re regarding insured losses in the first half of 2025 sends a clear warning signal to the global economy. With significant losses driven by wildfires and Severe Convective Storms, it is becoming increasingly evident that so-called secondary natural perils are no longer secondary in terms of their financial and operational impact. For companies, this means that mere reliance on insurance policies is no longer sufficient. Instead, an integrated strategy comprising Governance, Risk, and Compliance (GRC) is moving into focus to safeguard organizational resilience.

Key Takeaways

• According to Swiss Re, the first half of 2025 recorded massive insured losses, primarily driven by wildfires and severe storms.
• So-called secondary perils are increasingly exceeding traditional primary perils, such as earthquakes or hurricanes, in both frequency and loss magnitude.
• Companies face rising insurance costs while simultaneously confronting potential protection gaps.
• A robust GRC framework is essential to integrate physical climate risks into corporate steering and reporting (e.g., CSRD).
• Business Continuity Management (BCM) must be adapted to the new reality of volatile weather events.

Analysis: From Loss Balance to GRC Strategy

The data provided by Swiss Re highlights a trend that had already emerged in previous years and has reached a new level of intensity in 2025. The increase in extreme weather events can no longer be viewed as a statistical outlier but must be seen as a new normal fueled by climate change. From a Governance, Risk, and Compliance perspective, this results in concrete areas of action that extend far beyond pure insurance management.

Governance: Management Responsibility

In the governance dimension, the responsibility for natural hazards is shifting directly to boardrooms and supervisory boards. It is no longer enough to merely acknowledge climate risks. The fiduciary duties of corporate leadership require an active engagement with the question of how these external shocks threaten the business model in the long term.

Effective governance must ensure that physical climate risks are an integral part of strategic planning. If locations are threatened by wildfires or supply chains are severed by storms, this is not simply “weather-related bad luck,” but a foreseeable scenario for which leadership must be prepared. Governance here means releasing resources for prevention and aligning the risk strategy with data from reinsurers like Swiss Re.

Risk Management: Reassessing the Risk Landscape

Risk management faces the task of increasing the granularity of its analyses. Swiss Re’s reports show that thunderstorms and hail cause locally confined but financially devastating damage. Traditional risk models, often based on historical averages, fall short here.

Risk managers must conduct scenario analyses that specifically take so-called “Secondary Perils” into account. This includes not only direct property damage to own buildings or facilities. Often much more critical are the indirect consequences: business interruptions, failure of critical infrastructure (power, water, data lines), and disruptions in the supply chain. Modern risk management must map and quantify these dependencies. Furthermore, companies must verify whether their insurance policies are still adequate or if premium increases and exclusion clauses are creating an economic risk that requires provisions in the balance sheet.

Compliance: Regulatory Pressure and Reporting

The relevance of the Swiss Re data is also evident in compliance, particularly in the context of sustainability reporting. Regulations such as the Corporate Sustainability Reporting Directive (CSRD) in the EU oblige companies to disclose the financial impacts of climate risks.

If a company operates in regions that are particularly affected according to the Swiss Re report (e.g., wildfire-prone areas in North America or Southern Europe), this must be reflected in reporting. Compliance departments must ensure that the physical risks identified in risk management flow correctly into both non-financial and financial reporting. Ignoring this data can be interpreted as greenwashing or misleading capital market communication, entailing significant liability risks.

Business Continuity as an Operational Response

The interface of Risk and Operations is Business Continuity Management (BCM). The high frequency of storms and fires requires more agile BCM plans. Rigid emergency manuals are of little help against dynamic weather patterns. What is required are flexible response mechanisms, redundant supplier structures, and decentralized warehousing to absorb outages. Insights from the first half of 2025 should flow directly into BCM tests and simulations to harden operational resilience.

Conclusion: From Reaction to Preventive Steering

The loss balance of the first half of 2025 underscores impressively that volatility caused by natural hazards is not a temporary phenomenon but a structural change in the risk landscape. For companies, this implies a mandatory paradigm shift. GRC must no longer be understood as an administrative duty in the background but must function as a central, strategic steering instrument.

Only those who anticipate risks instead of merely settling claims, and who use compliance requirements as a quality mark for resilience, will survive in this increasingly uncertain environment in the long term. Investing in an integrated GRC system and engaging with data such as that provided by Swiss Re is thus far more than a cost item. It is the decisive foundation for operational capability and tomorrow’s economic success.

FAQ

What is meant by “Secondary Perils” as opposed to Primary Perils?

Primary Perils are large-scale events such as tropical cyclones or earthquakes. Secondary Perils are events that often occur more frequently but are more locally confined, such as severe thunderstorms, hail, tornadoes, droughts, or wildfires.

Why is this report relevant for companies that are not insurers?

The data shows that the probability of business interruptions and property damage is rising globally. Companies must adjust their risk precautions as insurance becomes more expensive or certain risks are no longer covered at all. Additionally, regulators demand transparency regarding these risks.

What role does the CSRD play in this context?

The CSRD requires affected companies to perform a Double Materiality analysis. This involves assessing and reporting the financial risks that climate change imposes on the company (outside-in perspective). The increase in natural catastrophes is a central factor in this regard.

How can GRC help reduce insurance costs?

A strong GRC system demonstrates to insurers that the company knows its risks and actively mitigates them (e.g., through preventive fire protection or redundant systems). This can improve the bargaining position when renewing insurance policies.