Unlocking Climate Risk Insurance: The Role of Public Development Banks

This report analyzes how public development banks (PDBs)—including national, regional, and multilateral institutions—can overcome structural and market barriers to expand climate risk insurance in emerging markets and developing economies (EMDEs). It emphasizes the role of PDBs as intermediaries that can co-develop insurance products, bundle coverage with loans, and provide technical assistance to strengthen local insurance markets and enhance economic resilience against physical climate hazards.

• Insurance in EMDEs is significantly underdeveloped compared to advanced economies; in 2023, total insurance premiums written were approximately 2% of GDP in EMDEs, compared to 12% in advanced economies.
• There is a substantial global protection gap for natural disasters; in 2024, it was estimated that only 37% of the USD 417 billion in global losses from natural disasters were insured.
• Parametric insurance is identified as having the most transformative potential for EMDEs because it offers rapid payouts based on pre-agreed triggers, lower administration costs, and reduced moral hazard compared to traditional indemnity insurance, though it introduces 'basis risk' where payouts may not match actual losses.
• National Development Banks (NDBs) can expand insurance access by acting as trusted intermediaries, convening stakeholders to align on climate risks, and bundling insurance with concessional lending to increase uptake among SMEs and vulnerable populations.
• Regional Development Banks (RDBs) are uniquely positioned to reduce risk correlations and premiums by establishing and scaling regional risk pools and developing shared regional data infrastructure to standardize risk models.
• Multilateral Development Banks (MDBs) provide critical system-level support through credit enhancements, blended finance, and the issuance of insurance-linked securities, such as catastrophe bonds, to mobilize private capital for high-risk regions.
• Several structural barriers hinder insurance uptake in EMDEs, including a lack of well-structured project pipelines, insufficient local capital bases, outdated regulatory frameworks, and significant data gaps regarding hazard exposure and historical losses.
• Public subsidies for insurance premiums can drive adoption but may lead to maladaptive behaviors or distorted incentives if they lack clear sunset clauses or fail to maintain rigorous risk pricing.

APA

Peres, T., Sharma, J., Asunmonu, O., & Olutoke, J. (2026). Unlocking Climate Risk Insurance: The Role of Public Development Banks. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2026/05/Unlocking-Climate-Risk-Insurance.pdf

Chicago

Peres, Taarika, Jyoti Sharma, Oluwafunmibi Asunmonu, and Jide Olutoke. Unlocking Climate Risk Insurance: The Role of Public Development Banks. Climate Policy Initiative, 2026. https://www.climatepolicyinitiative.org/wp-content/uploads/2026/05/Unlocking-Climate-Risk-Insurance.pdf.

Wikipedia

{{cite report |last1=Peres |first1=Taarika |last2=Sharma |first2=Jyoti |last3=Asunmonu |first3=Oluwafunmibi |last4=Olutoke |first4=Jide |title=Unlocking Climate Risk Insurance: The Role of Public Development Banks |publisher=Climate Policy Initiative |date=May 2026 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2026/05/Unlocking-Climate-Risk-Insurance.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{peres2026unlocking, author = {Peres, Taarika and Sharma, Jyoti and Asunmonu, Oluwafunmibi and Olutoke, Jide}, title = {{Unlocking Climate Risk Insurance: The Role of Public Development Banks}}, institution = {Climate Policy Initiative}, year = {2026}, month = may, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2026/05/Unlocking-Climate-Risk-Insurance.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }