Climate change threatens economic growth, infrastructure, and livelihoods in Asia and the Pacific. By addressing gaps in insurance availability, affordability, and awareness, the region can improve financial protection against catastrophic climate risks and support sustainable development.

There is no doubt that the Asia-Pacific region is bearing the brunt of the impacts of climate change, and the situation is unlikely to improve in the near future.

The region could lose 26.5% of its GDP by 2050 if no action is taken to mitigate climate change, according to the Swiss Re Institute.

Take floods for example: 75% of global annual capital losses from floods occur in the Asia-Pacific region.

Between 600 million and 1 billion people in the region live in areas where deadly heat waves are possible. McKinsey & Company notes that the increased strain on health care and productivity from heat and humidity could threaten regional GDP of between $2.8 trillion and $4.7 trillion.  

Meanwhile, losses in crop and livestock production, amounting to an average of US$123 billion per year in Asia and the Pacific, or 5% of global agricultural GDP, threaten food security and the livelihoods of farmers and fishers (according to FAO).

63% of the region’s GDP, equivalent to US$19 trillion, is at risk from biodiversity-related losses, according to the World Economic Forum.

 

Insurance is a key element of protection against the effects of climate change

Our region suffers from a large insurance gap – the difference between optimal financial protection and its actual use among people and countries. 

The Asia-Pacific protection gap is estimated at US$886 billion in insurance premiums, up 38% from 2017 and accounting for almost half of the global gap. Only 9% of economic losses, or US$6 billion, are covered by insurance.

The impact of risks caused by natural disasters alone is estimated at approximately $280 billion, with only $120 billion insured. 

Three out of four households in the region are at financial risk if a breadwinner dies. This “death protection” gap was $83 trillion in 2019 and could reach $119 trillion by 2030, according to some estimates. 

The “health protection gap,” or the gap between the health care people need and the services they can afford, was US$1.8 trillion in 2019, or 10% of the median annual household income. That’s a big factor as Asia ages rapidly.

Crop insurance is an effective risk management tool that can reduce price volatility, stabilize farmers’ income, increase resilience to weather events, and facilitate access to agricultural finance.

Around 60% of crops worldwide are not covered by insurance (according to Swiss Re). The Asia-Pacific region faces a significant gap in agricultural protection, as only 15% of economic losses in the region are insured.

Many countries lack robust social protection systems and their pension coverage rates are very low. By 2050, people over 60 are expected to make up 25% of the region’s population, up from 14% in 2020. The region will face a pension savings gap of US$3.8 trillion per year.

Insurance also helps governments cope with shocks by acting as a countercyclical tool to stabilize the economy during crises. It provides liquidity after disasters and eases the fiscal burden.

Life insurance and pensions play a key role in mobilizing savings for sustainable development, incentivizing risk-reducing behavior and contributing to long-term economic growth.

 

We need to fix the problems in the insurance system

Closing the insurance protection gap in Asia is critical to mitigating the region’s vulnerability to climate and economic shocks.

To close this gap, we must take measures that focus on availability, accessibility, awareness, administration and trust.  

Availability: Vulnerable people cannot afford the premiums. The cost of life insurance is often prohibitive, leaving many people without financial protection when a family breadwinner dies.

Even in countries with universal health insurance, premiums for supplementary private health insurance are prohibitively high.

Many people instead delay or forgo treatment. Farmers, already operating on thin margins, face high crop and livestock insurance premiums that are often unaffordable without government subsidies. 

And in countries prone to frequent severe weather events, the high cost of earthquake, typhoon and flood insurance means many residents do not take it out.

Yet these economic barriers are not insurmountable. Through targeted measures such as subsidies to make insurance more affordable, tailored microinsurance products, and innovative distribution models, we can ensure that vulnerable people get the protection they need.

Accessibility: Insurance agents have difficulty reaching potential clients on many remote islands and mountainous areas, leaving many people without insurance coverage.

Even with the proliferation of digital platforms, many rural residents still lack internet or smartphones or the digital literacy needed to connect to digital insurance platforms. 

But accessibility can be improved through better infrastructure, increased digital literacy, transparent practices, and trust through community engagement.

Awareness: Many people still rely on informal insurance mechanisms during crises, such as family networks, rather than formal insurance products. Traditional beliefs and poor knowledge of how insurance works only worsen enrollment rates and hinder wider coverage.

Closing these knowledge gaps requires a collective effort. By leveraging local leaders, community organizations, and politicians, we can effectively disseminate information and raise awareness about the benefits of insurance and how to access it.

Administrative complexity: Extensive paperwork and multiple visits to insurance offices discourage eligible individuals from registering. Language barriers and slow, inefficient claim procedures can also deter potential customers. 

Removing administrative complexity requires simpler procedures, less paperwork, and greater use of technology to streamline processes. By making insurance more user-friendly, we can increase coverage for vulnerable populations.

Trust: Many people believe that insurance companies are more interested in profit than in providing real support. Stories of denied and delayed claims and complicated claims processes contribute to this mistrust.

Therefore, insurers must increase transparency, simplify claims processes, and build stronger relationships with the public through consistent and reliable service and improved insurance literacy.

… Addressing insurance protection gaps in Asia and the Pacific is critical to reducing its vulnerability to climate and economic shocks. By improving availability, affordability, and trust, insurance systems can protect vulnerable populations and help ensure long-term stability.