As we stand on the face of increasingly severe climate-related challenges, the international community must collaborate to identify tangible solutions. One of the most pressing issues is the insurance protection gap for climate-related natural disasters, a common concern across nations, regardless of their economic status. The implications of this gap extend far beyond financial metrics—they are critical to the achievement of Agenda 2030.
Insurance: A Pillar of Climate Adaptation
Insurance, apart from being a very useful financial instrument, helps to improve resilience by providing individuals, communities, and businesses with the necessary financial support to recover and rebuild, ensuring a quicker return to normality and stability after unforeseen events. In fact, countries with strong insurance coverage recover faster and more efficiently after a natural disaster. Insurance becomes even more significant in the face of climate change, where unpredictable weather events and natural catastrophes have become the norm rather than the exception.
Agenda 2030 and the Sustainable Development Goals (SDGs): Where Insurance Fits In
Insurance is also central to the achievement of all the SDGs, especially in the face of increasing climate impacts, which threaten progress on sustainable development.
For SDG 11, which aims to “make cities inclusive, safe, resilient and sustainable,” insurance is vital to ensure that cities recover fast from disasters, prevent long-term displacement, and maintain the continuity of essential services. Related to SDG 2’s objectives to end hunger and ensure access by all people to safe, nutritious, and sufficient food year round, crop insurance can provide farmers with a safety net as unpredictable weather patterns threaten agricultural yields, preventing a single season of drought or flooding from resulting in long-term food insecurity.
SDG 13 (climate action) also calls for rapid action to strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries. In this case, insurance serves not only as a proactive tool, but as a reactive measure. Insurance motivates both public and private entities to prioritize climate resilience by providing clear economic signals about the value of sustainable infrastructure and the cost of inaction.
The Economic Implications: Beyond Direct Losses
Climate-induced extreme weather events may have long-term economic implications in multiple areas. First, not only do they directly affect GDP growth and inflation, but they disrupt the trajectory of short and medium-term economic activities. Second, natural disasters pose systemic risks to financial institutions and markets by devaluing directly affected assets held as collaterals and significantly altering the pricing of loans and securities, especially for those institutions operating in vulnerable regions. Furthermore, the consequences of catastrophe risks negatively impact a country’s fiscal condition and its ability to manage debt. Such risks can damage a country’s finances due to increased post-disaster costs, such as enhanced social support and decreasing tax revenues.
Insurance plays a pivotal role in this aspect, as it provides timely financial support after a disaster to both businesses and individuals, aids in faster economic recovery, and helps stabilize GDP growth. On a national scale, insurance reduces stress on public finances by covering a portion of post-disaster costs and ensures that essential services and support mechanisms remain funded without negatively affecting national reserves or significantly impacting tax revenues. In essence, insurance acts as a financial buffer, helping economies navigate and recover from the aftermath of extreme climate events.
The Power of Public-Private Partnerships (PPPs)
Public-Private Partnerships (PPPs) have proven their pivotal role in facilitating the provision of comprehensive insurance solutions to support climate adaptation. To successfully address the complex problems of climate adaptation and mitigation, cooperation is necessary. This type of collaboration, which combines the strengths and resources of both public and private organizations, is essential for addressing the complex problems caused by climate change.
One of the strongest advantages of PPPs in supporting the provision of climate insurance is the diversification and sharing of risks. By pooling resources and expertise, risks associated with large-scale climate events are spread more broadly, ensuring neither party is excessively loaded. This shared responsibility fosters stability and ensures continuity of services, even in the face of major catastrophes. PPPs have also helped to catalyze innovation in the insurance market. This includes the development of new insurance products that cover specific climate risks and the acceleration of cutting-edge technologies for risk assessment.
For example, several insurers in the U.S. lower your premiums if the policyholder takes steps to lower climate risks. In the U.S. National Flood Insurance Programme, for instance, one can get lower flood insurance rates if they are rated highly for how well they handle floodplains. Some recent innovative PPPs include the Indonesian public asset insurance scheme, in which the Government of Indonesia signed an umbrella contract with 50+ re/insurers work to protect state assets against natural disasters; and the Thai national rice insurance scheme, which covers Thai farmers’ rice crops if their crop is damaged before harvest. Swiss Re has provided reinsurance capacity to this scheme since 2011.
The Road Ahead As we approach COP28, the importance of PPPs in confronting the escalating climate crisis takes on an even greater significance. Yet, to benefit from the full potential of insurance in climate adaptation, governments must commit to facilitating an enabling environment for PPPs through regulatory reforms and incentives that promote investment in climate-resilient development. These efforts are key to building a more adaptable and secure world where societies are equipped to manage and recover from the impacts of climate change, ensuring the well-being and prosperity of future generations.
*Angelos Plataniotis is a PhD Candidate in the domain of Sustainability Economics and Finance, under the supervision of Professor Phoebe Koudouri and participates in various projects of the ATHENS Research Centre as well as in activities of the SDSN, including the Senior Working Group for the European Green Deal. He works at the Bank of Greece as a Supervisor of Insurance Companies and previously held positions as an Auditor at Deloitte Greece and as an Operational Risk Management Officer at NN Hellas Life Insurance Company. He is a graduate of Statistics and Actuarial-Financial Mathematics and holds a Master’s degree in Applied Economics and Finance and another in Bioinformatics and Neuroinformatics.