Scaling Uptake of Insurance in the Municipal Climate Resilience Toolkit Discussion Paper Part 3

This discussion paper analyzes the barriers to adopting climate risk insurance in municipalities within emerging markets and developing economies (EMDEs), where over 90% of losses remain uninsured. It identifies parametric insurance as a key solution due to its rapid payouts and simpler structure. The paper highlights a significant collaboration gap in the current ecosystem, where few programs engage directly with cities. To address this, it proposes three priority actions: establishing premium support mechanisms, enhancing municipal risk-layering capacity, and reforming regulatory environments to make insurance more affordable and financially viable.

• A significant insurance protection gap exists for climate-related losses in emerging markets and developing economies (EMDEs), where uninsured losses exceed 90%. Specific examples include Mexico, where insurance covered only 21% of disaster losses, and India, where it covered 9%. In Peru, 92% of public assets lack insurance coverage.
• Climate-related disasters create severe fiscal shocks for municipalities through increased recovery costs and diminished revenues. For example, sea level rise can reduce property taxes while increasing infrastructure maintenance costs. In South Africa, water scarcity and revenue losses led to credit downgrades for local and regional governments, reducing their ability to absorb future shocks. In Kerala, India, 2018 floods resulted in USD 4.4 billion in economic losses, 95% of which were uninsured, forcing the state to consider new taxes and cut economic development initiatives.
• Parametric insurance is identified as a primary entry point for EMDE cities because it provides rapid post-disaster liquidity based on pre-agreed hazard thresholds (e.g., wind speed or rainfall) rather than asset values. This makes it more viable than traditional indemnity insurance, which often requires slower claims processes and the ability to insure full replacement values of assets.
• An ecosystem mapping of 16 programs supporting climate risk insurance in EMDEs reveals a structural collaboration gap. Only 5 of the 16 programs engage directly with municipal governments, and none of the 3 programs focused on multistakeholder coordination include municipalities. Most initiatives are country-specific, while regional and global programs are less likely to involve cities directly.
• The paper identifies four thematic action areas to address the municipal insurance gap: 1) Data, Risk Modeling, and Planning; 2) Financial Viability and Affordability; 3) Governance and Regulations; and 4) Capacities and Product-Market Fit. Financial Viability and Affordability was prioritized as the most critical area for near-term collaborative action.
• To improve financial viability and affordability, the paper proposes three priority actions: supporting affordable premiums through grants or subsidies from national governments and DFIs; strengthening municipal risk-layering capacity to help cities decide which risks to retain versus transfer; and improving enabling environments by reforming legal, policy, and regulatory frameworks to reduce transaction costs.

APA

LaSalle, J. M., Abdullah, H., & Bansal, S. (2026). Scaling Uptake of Insurance in the Municipal Climate Resilience Toolkit Discussion Paper Part 3. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2026/07/CCFLA-Scaling-Uptake-of-Insurance-in-the-Municipal-Climate-Resilience-Toolkit.pdf

Chicago

LaSalle, John Michael, Hamza Abdullah, and Shreya Bansal. Scaling Uptake of Insurance in the Municipal Climate Resilience Toolkit Discussion Paper Part 3. Climate Policy Initiative, 2026. https://www.climatepolicyinitiative.org/wp-content/uploads/2026/07/CCFLA-Scaling-Uptake-of-Insurance-in-the-Municipal-Climate-Resilience-Toolkit.pdf.

Wikipedia

{{cite report |last1=LaSalle |first1=John Michael |last2=Abdullah |first2=Hamza |last3=Bansal |first3=Shreya |title=Scaling Uptake of Insurance in the Municipal Climate Resilience Toolkit Discussion Paper Part 3 |publisher=Climate Policy Initiative |date=July 2026 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2026/07/CCFLA-Scaling-Uptake-of-Insurance-in-the-Municipal-Climate-Resilience-Toolkit.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{lasalle2026scaling, author = {LaSalle, John Michael and Abdullah, Hamza and Bansal, Shreya}, title = {{Scaling Uptake of Insurance in the Municipal Climate Resilience Toolkit Discussion Paper Part 3}}, institution = {Climate Policy Initiative}, year = {2026}, month = jul, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2026/07/CCFLA-Scaling-Uptake-of-Insurance-in-the-Municipal-Climate-Resilience-Toolkit.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }