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As extreme weather events become more frequent and severe, closing the widening climate protection gap has never been more urgent. According to Elizabeth Henderson, Global Head of Climate Advisory at broker Aon, financial tools such as parametric insurance, catastrophe bonds, and public-private partnerships (P3) are critical towards building resilience and closing the gap.
In a World Economic Forum article, Henderson highlighted that climate disasters in 2024 caused $368 billion in losses worldwide, with $223 billion uninsured, exposing a significant global protection gap.
“From catastrophic flooding in Spain, to the second worst wildfire season on record in Canada and record-breaking heatwaves across South America and the Caribbean, the world has experienced a new level of climate disruption in recent years. Climate risks are intensifying and compounding every year, creating shocks to governments, trade systems, workforce health and more,” Henderson explained.
In 2024 alone, Aon estimated that weather-related disasters caused approximately $368 billion in economic losses across the globe, which included the destruction of physical assets such as homes, factories and power grids, disruption of critical supply chains, business closures, and halted production across entire sectors.
“But perhaps an even more surprising finding: sixty percent of those losses, $223 billion, went uninsured, creating a climate protection gap. This lack of asset protection can devastate local economies, delay recovery for entire industries and threaten human health in communities around the world, especially in climate-vulnerable regions,” Henderson added.
“This is a sign that our global risk management infrastructure may not be able to keep up with the reality of our changing climate.”
As extreme weather events become more frequent and severe, Henderson states that the industry needs a new approach to risk: “one that better protects the world’s most vulnerable communities when disaster strikes.”
In the article, Henderson explains that industry experts are rethinking traditional systems of risk management and designing more adaptive solutions in order to help meet the future needs of a rapidly changing climate.
“Through expanded access to financial tools such as parametric insurance, catastrophe bonds and public-private financing solutions, as well as investments in infrastructure and climate-adaptive systems, governments and communities can reduce recovery time, build resilience and narrow the protection gap,” Henderson explains.
Starting with parametric insurance, Henderson highlights how unlike traditional insurance coverage, parametric insurance pays out automatically when specific conditions, such as wind speed or rainfall are met, which makes it possible for communities to access funds quickly and accelerate the recovery process.
“Parametric solutions are especially relevant in areas where traditional insurance is not accessible. In small island nations and agricultural regions, these products have been extremely useful in providing rapid relief. As a result, demand for parametric insurance is growing fast in Asia-Pacific, Sub-Saharan Africa and the Caribbean,” the article reads.
Turning attention towards catastrophe bonds, Henderson highlights how these insurance-linked securities (ILS) instruments open up new channels of capital to support climate resilience.
“At the end of 2024, the catastrophe bond market had grown to nearly $50 billion, with many deals offering double-digit returns to investors. This makes cat bonds not only a lifeline for at-risk nations, but an increasingly attractive asset class in global capital markets,” Henderson said.
However, while both parametric insurance and cat bonds offer promising tools for climate resilience, many underinsured and high-risk regions can still face significant barriers to coverage, which is where public-private partnerships can play a critical role, according to Henderson.
Henderson stresses that by combining the resources and expertise of governments, multilateral institutions and the private sector, these collaborations can help expand access to protection where it’s needed most.
“Public-private finance models not only fund both risk mitigation and recovery efforts, but they can also unlock capital in conflict-affected regions. Aon recently partnered with the U.S. International Development Finance Corporation and Ukraine’s Ministry of Economy to launch a $350 million insurance facility, which aims to accelerate new capital investment and stimulate economic recovery amidst ongoing conflict. As a result, companies are reopening facilities and increasing jobs, creating stability during a time of uncertainty. The same principles can be applied to communities affected by natural catastrophe events,” Henderson explained.
To close, Henderson notes that the industry cannot meet today’s climate risks by using “yesterday’s tools”.
“As weather-related disasters grow in frequency and intensity, the imperative is clear: we must shift from reactive recovery to proactive resilience.
Concluding: “That means investing in innovative risk transfer models, expanding access to financial protection and strengthening infrastructure before disaster strikes. Parametric insurance, catastrophe bonds and public-private partnerships are already helping communities protect what matters most. Closing the $223 billion climate protection gap will take foresight, collaboration and bold action.”
Also read: Cat bonds, parametrics & risk pools can narrow nat cat protection gap: G20 South Africa event
Parametric insurance, cat bonds & P3 critical for closing the protection gap: Aon’s Henderson was published by: www.Artemis.bm
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