Building Climate Resilience in Cities Through Insurance

This report explores how insurance can be integrated into urban climate resilience strategies to mitigate financial and physical risks. It argues that while insurance is underutilized, cities can act as consumers of risk-transfer products, stewards of risk-reducing policy, and conveners of stakeholders. Key barriers include a lack of technical capacity, data gaps, and the short-term nature of insurance products. The report recommends increased investment in risk assessment, the development of collaborative resilience plans with the insurance industry, and the use of concessional finance from DFIs to make insurance affordable for vulnerable urban populations.

• The global insurance protection gap reached a record high of USD 1.4 trillion in 2020, with 76% of natural catastrophe losses remaining uninsured.
• Insurance provides benefits beyond financial recovery, including increasing risk awareness, creating incentives for risk-reducing behavior (such as linking premiums to building codes), and supporting economic growth by mobilizing savings for investment.
• City governments can utilize several insurance-based financial tools: risk pooling to enhance recovery financing, parametric insurance for quick payouts based on trigger events, catastrophe bonds for long-term protection, and dedicated municipal funds for risk management.
• Municipalities can act as stewards of risk mitigation by implementing zoning laws to discourage building in high-risk areas, updating building codes, and creating climate adaptation plans that integrate risk assessments into spatial planning.
• An analysis of 55 city resilience strategies found that insurance-related solutions were explicitly mentioned in only 40% of them, and these primarily focused on vulnerable groups rather than the city's own financial health.
• National governments can support urban resilience by providing reconstruction products, disaster liquidity products, publicly owned insurers, and multi-sovereign risk pools like the African Risk Capacity (ARC).
• Development Finance Institutions (DFIs) can provide critical concessional support to cities through premium financing, capitalization of insurance vehicles, and technical assistance for risk modelling and product structuring.
• The insurance sector holds approximately USD 33 trillion in assets, but less than 3% is invested in infrastructure, and less than 10% of that goes to low- and middle-income countries.
• Significant barriers to insurance penetration include a lack of technical capacity and risk literacy among city officials and urban dwellers, limited fiscal autonomy for municipalities, and the short-term nature of insurance products compared to long-term climate risks.
• Data limitations hinder the insurance sector's ability to price risk accurately; data is often scattered, not open source, and difficult for users to interpret, which leads to ineffective product design.

APA

Sasson, I., Choi, J., Richmond, M., Upadhyaya, N., & Pastor, A. O. (2021). Building Climate Resilience in Cities Through Insurance. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2021/10/Building-Climate-Resilience-in-Cities-Through-Insurance.pdf

Chicago

Sasson, Idan, June Choi, Morgan Richmond, Nidhi Upadhyaya, and Angela Ortega Pastor. Building Climate Resilience in Cities Through Insurance. Climate Policy Initiative, 2021. https://www.climatepolicyinitiative.org/wp-content/uploads/2021/10/Building-Climate-Resilience-in-Cities-Through-Insurance.pdf.

Wikipedia

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BibTeX

@techreport{sasson2021building, author = {Sasson, Idan and Choi, June and Richmond, Morgan and Upadhyaya, Nidhi and Pastor, Angela Ortega}, title = {{Building Climate Resilience in Cities Through Insurance}}, institution = {Climate Policy Initiative}, year = {2021}, month = sep, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2021/10/Building-Climate-Resilience-in-Cities-Through-Insurance.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }