Strengthening Financial Resilience to Climate Change

This fact sheet examines the role of insurance and alternative risk financing in building financial resilience against climate change. It details the growing 'protection gap'—the difference between total economic losses and insured losses—and explores emerging tools such as catastrophe bonds, microinsurance, and sovereign risk pools designed to manage the increasing frequency and intensity of climate-related disasters.

• The frequency of 'billion-dollar' disasters in the United States has increased significantly, rising from an average of 5.3 per year between 1980 and 2012 to 11.6 per year between 2013 and 2017. In 2017 alone, 16 such disasters resulted in losses exceeding $300 billion.
• A widening 'protection gap' exists between total economic losses from disasters and the amount covered by insurance. 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. This gap is driven by urbanization, globalization, and climate change.
• The insurance industry is shifting from traditional actuarial science based on historical data to forward-looking 'cat models' (catastrophe models) and geospatial models. These tools incorporate meteorological science and topographical data to price risk more accurately and account for climate trends that deviate from the past.
• Catastrophe bonds ('cat bonds') have emerged to finance 'tail risks'—extremely rare and destructive events that may exceed the capacity of traditional insurance markets. These insurance-linked securities transfer risk to broader capital markets, allowing private investors to take on risk in exchange for returns if no disaster occurs.
• Microinsurance, often utilizing a 'parametric' or index-based approach, provides financial security to vulnerable populations, such as low-income farmers earning less than $4 a day. By using pre-set numeric measures (e.g., rainfall levels) to trigger payouts, these programs reduce transaction costs and eliminate the need for individual damage assessments.
• Sovereign risk pools, such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC), allow multiple countries to share risks and lower premiums. CCRIF SPC, which includes 16 Caribbean nations and Nicaragua, provides index insurance for earthquakes, excess rainfall, and hurricanes, with payouts typically made within 14 days of an event.
• The role of insurance in climate resilience is recognized in international frameworks. Article 8 of the Paris Agreement identifies 'Loss and Damage' as a distinct pillar of climate policy, and the Sendai Framework for Disaster Risk Reduction encourages national governments to collaborate with the insurance industry to reduce economic losses.

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} }