Unlocking Climate Risk Insurance: The Role of Public Development Banks

The report argues that public development banks (PDBs)—including national, regional, and multilateral institutions—are uniquely positioned to overcome structural and market barriers to climate risk insurance in EMDEs. It identifies key barriers such as data gaps, underdeveloped local capital bases, and fragmented regulatory frameworks. The document proposes a tiered approach where National Development Banks (NDBs) focus on local market development and project pipelines, Regional Development Banks (RDBs) coordinate risk pooling and shared data infrastructure, and Multilateral Development Banks (MDBs) provide catalytic capital and credit enhancement. Key recommendations include the use of targeted premium subsidies with sunset clauses, the bundling of insurance with loans, and the creation of regulatory sandboxes to foster innovation in parametric insurance.

• There is a significant 'protection gap' in EMDEs, where insurance premiums written accounted for only approximately 2% of GDP in 2023, compared to 12% in advanced economies.
• Insurance and catastrophe bonds were underutilized as pre-arranged risk finance mechanisms in EMDEs in 2023, representing less than 30% of such tools, while contingent disaster loans and grants made up 68%.
• Parametric insurance is identified as having the most transformative potential for EMDEs because it offers rapid payouts based on predetermined thresholds, lower administration costs, and reduced moral hazard compared to indemnity insurance.
• National Development Banks (NDBs) can expand insurance access by acting as financial intermediaries, convening stakeholders to align on climate risks, and bundling insurance with concessional lending.
• Regional Development Banks (RDBs) are critical for reducing risk correlations and premiums by establishing and scaling regional risk pools and developing interoperable regional data hubs.
• Multilateral Development Banks (MDBs) can mobilize private capital through risk-sharing mechanisms; for example, the ADB's Master Framework Agreement for Sustainable Infrastructure aims to mobilize up to USD 2.75 billion of private capital by transferring credit risk to insurers.
• The World Bank has used its credit rating and issuance systems to provide the Government of Jamaica with USD 150 million in financial protection through a parametric CAT Bond for hurricane seasons.
• Five primary barriers hinder insurance uptake in EMDEs: lack of a credible pipeline of insurable projects, underdeveloped local capital bases, outdated regulatory frameworks, poorly designed public subsidies, and significant data gaps.
• Public subsidies for insurance premiums can lead to maladaptive behaviors if they lack sunset clauses, potentially encouraging development in high-risk areas.

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} }