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Nascent form of risk finance can help plug insurance protection gap in emerging markets

The WEF’s Global Risks Report released this month is a sobering read but, for many, an unsurprising one. For the first time in its 10-year history, all five of the top risks were related to some form of environmental threat, from property-damaging extreme weather to the prospect that efforts by businesses and governments to mitigate climate change will fail.

According to the report, most companies still seem “ill-equipped” to address climate risk. “Many do not yet quantify physical climate risks in their direct operations and supply chains, and those that do are likely to be underestimating them significantly,” the report notes, leaving them exposed to significant losses in the increasingly likely event of extreme weather or natural disasters.

This “protection gap” is even more stark in emerging markets, where the impact of natural disasters can be particularly devastating. While about 50 per cent of disaster losses are covered by insurance in high-income countries, the corresponding proportion in poorer countries is less than 5 per cent….

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