RESILIENCE INSURANCEBuilding Climate Resilience Through Insurance Incentives

By Chesang Rotich

When wildfires sweep through neighborhoods, insurance is often the last line of defense. But increasingly, that defense is disappearing. Recently, the insurance industry has responded to severe climate risks by withdrawing coverage from higher-risk areas. Between 2016 and 2023, nearly 70% of global disaster losses went uninsured, representing up to $260 billion in losses each year. The gap is growing, and with it, the vulnerability of communities already on the front lines of climate change.

Insurance does not have to be just a payout after a tragedy. When designed thoughtfully, it can act as a lever for resilience. One example is the African Risk Capacity, which pioneered satellite-based index insurance, tying payouts to environmental data. In February 2017, as pastoralists across Kenya’s arid north braced for another brutal dry season, the Kenya Livestock Insurance Program stepped in, sending payouts of nearly Ksh 215 million (about US $2.1 million) to thousands of families, based entirely on satellite-monitored grazing conditions. The program was developed by the Kenyan government, the World Bank and private insurers to reach small-scale livestock holders through cooperatives and microfinance institutions.

Key Insights from Our Research
Our capstone project, for the M.A. in Climate and Society at Columbia Climate School, explored how insurance can be more than a safety net. We collaborated with R2 Resilience, a pre-seed company that seeks to innovate in the commercial property sector by identifying top adaptation measures that can both reduce risk and expand access to insurance. Their approach is simple: If insurers reward resilience upgrades with lower premiums or better coverage, property owners are more likely to invest in adaptation.

For example, in wildfire-prone areas, buildings that remove dense vegetation, create “defensible spaces” around a property or utilize fire-resistant building materials are implementing highly effective measures to reduce wildfire risk. These proactive risk-reduction measures should also be reflected in insurance coverage and premiums.

Our research revealed both the promise and pitfalls of using insurance as a driver of climate resilience. One theme kept surfacing: Insurance is only as strong as the data behind it. Yet in many regions, the information needed to evaluate risk and price resilience is inconsistent. This becomes even more complex in developing countries, where there is generally a lack of standardization of buildings or limited uniformity in building codes. Additionally, certain risk data (e.g., building material inventories and historical flood maps) may often be collected and labeled differently across geographies, making it challenging to price climate resilience efforts.