Strengthening Financial Resilience to Climate Change

The document analyzes how climate change increases the frequency and intensity of 'billion-dollar' disasters, straining national budgets and widening the 'protection gap'—the difference between total economic losses and insured losses. It details the transition from traditional actuarial science to forward-looking 'cat models' and geospatial modeling to price risk. To address 'tail risks' and the lack of insurability in vulnerable regions, the text highlights alternative mechanisms: catastrophe bonds for capital market risk transfer, microinsurance (parametric insurance) for low-income populations, and sovereign risk pools for multi-country coverage. It also notes the codification of insurance in international frameworks like the Paris Agreement's 'Loss and Damage' pillar and the Sendai Framework for Disaster Risk Reduction.

• Climate change is increasing the frequency of 'billion-dollar' disasters in the United States; the average number of such events per year rose from 5.3 between 1980 and 2012 to 11.6 between 2013 and 2017.
• The global 'protection gap'—the disparity between total disaster losses and insured losses—is widening due to urbanization, globalization, and climate change. In 2016, insurance losses were less than one-third of the approximately $175 billion in total disaster-related losses, leaving a gap of $121 billion.
• Traditional insurance models based on historical data are becoming obsolete; the industry now relies on 'cat models' and geospatial models that incorporate meteorological science and topographical data to predict future risks and price insurance accurately.
• Catastrophe bonds ('cat bonds') allow the insurance industry to transfer 'tail risks'—extremely rare and destructive events—to broader capital markets, providing a buffer when traditional insurance capacity is insufficient.
• Microinsurance uses a parametric 'index approach' based on pre-set numeric measures (e.g., rainfall levels) to provide swift payouts to vulnerable populations, such as smallholder farmers, without the need for expensive individual damage assessments.
• Sovereign risk pools, such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC), enable member countries to share risks and access international reinsurance markets, providing payouts within 14 days of a disaster.
• International climate policy has formally recognized insurance as a tool for addressing 'Loss and Damage' under Article 8 of the Paris Agreement and within the Sendai Framework for Disaster Risk Reduction.

APA

Scolari, B., & Pfister, M. (2018). Strengthening Financial Resilience to Climate Change. Environmental and Energy Study Institute. https://www.eesi.org/papers/view/fact-sheet-strengthening-financial-resilience-to-climate-change

Chicago

Scolari, Beatrix, and Maria Pfister. Strengthening Financial Resilience to Climate Change. Environmental and Energy Study Institute, 2018. https://www.eesi.org/papers/view/fact-sheet-strengthening-financial-resilience-to-climate-change.

Wikipedia

{{cite report |last1=Scolari |first1=Beatrix |last2=Pfister |first2=Maria |title=Strengthening Financial Resilience to Climate Change |publisher=Environmental and Energy Study Institute |date=31 August 2018 |url=https://www.eesi.org/papers/view/fact-sheet-strengthening-financial-resilience-to-climate-change |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{scolari2018strengthening, author = {Scolari, Beatrix and Pfister, Maria}, title = {{Strengthening Financial Resilience to Climate Change}}, institution = {Environmental and Energy Study Institute}, year = {2018}, month = aug, url = {https://www.eesi.org/papers/view/fact-sheet-strengthening-financial-resilience-to-climate-change}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }