Climate insurance protection gap: a literature review and a research agenda for decision making

Irene Monasterolo, Karl Naumann-Woleske and Carmine Russo

No 20641, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We explore the role of insurance as a financial instrument for the management of climate-related natural disasters (or acute physical risks). First, we review and critically discuss the drivers of the climate insurance protection gap (IPG) considering both its supply-side and demand-side dimensions, and we identify their driving economic mechanisms. Then, we develop a conceptual framework to understand how the IPG affects the sovereign fiscal sustainability and financial stability, and through that the availability and costs of public and private investments for climate adaptation. Building on these results, we develop a research agenda to scale up the role of public and private insurance (and reinsurance) and narrow the IPG in a fiscal and financial stability-aware way. We identify (i) a proper use of science-based climate scenarios at the relevant disaggregation level, (ii) the ex-ante analysis of the macroeconomic and financial impacts of underinsurance, (iii) the analysis of the economic co-benefits of adaptation policy, and (iv) sustainable market design and governance as as key areas for future research.

JEL-codes: G22 G32 H63 Q54 (search for similar items in EconPapers)
Date: 2025-09
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