Natural disasters such as floods, droughts, earthquakes, and extreme heat have become more frequent, with higher economic costs, due to climate change, urbanization, population growth and growing construction in high-risk areas. An average of more than 400 natural disasters occur worldwide each year, placing millions of people at risk, particularly those living in middle- and low- income countries. In 2023, these disasters globally claimed 74,000 lives and resulted in $250 billion of losses. These disasters pressured government budgets, disrupting development and investment in long-term resilience. They destroyed livelihoods, and jeopardized key sectors like agriculture and food production, transport, energy, tourism, and industry. Vulnerable groups, including low-income households, rural communities, and displaced people are disproportionately affected, exacerbating social inequalities and complicating recovery efforts. Across the developing world, nearly one in five people are at risk of disasters from which they will not fully recover.
Insurance could play a greater role in managing the financial impact of natural disasters. Insurance can offer financial protection against damage to physical assets and lessen impacts on economic activity and livelihoods. It can also provide incentives for adaptation, risk mitigation and preparedness before a disaster. Insurance companies also contribute to capital market development. As institutional investors with assets of almost $40 trillion, they deploy long-term capital in the real economy to support long duration projects, such as for infrastructure projects.
However, in most developing countries the development of insurance markets is constrained due to limited access to data and technical capacity and weak legal and regulatory frameworks, among others. Growing frequencies and scale of disasters impacting availability, affordability, and insurability is a major concern. Developed markets also face issues of growing disaster risks reducing the affordability of insurance or even causing insurer market exits where they are unable to charge risk-based premiums.
The public sector and private sector must work together in developing effective markets to protect vulnerable economies and populations with sustainable and affordable solutions.