Climate risk protection gaps need capital market (ILS) solutions

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The physical climate risk protection gap, so the gulf between climate related losses covered by insurance, reinsurance or risk transfer and those going uncovered, is widening, but instruments such as insurance-linked securities (ILS), catastrophe bonds and other blended financing solutions can help to narrow this gap.

In real estate the climate risk protection gap is particularly stark and financing tools are needed urgently to help absorbing some of the climate exposure that is uncovered at the moment, Fitch Ratings explained in a recent report.

The rating agency looked at the need for risk transfer and risk financing instruments that can help in the global response to longer-term climate related exposures, explaining that there are a patchwork of insurance and reinsurance related solutions, but that in insurance-linked securities (ILS) we perhaps get a glimpse of emerging financial products that could, in future, make a significant difference.

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