Building Climate Resilience Through Insurance Incentives
One employee of an international organization told us: “In most developing countries, infrastructure is constructed or owned by the private sector, which is not worried about intergenerational inequity.” This points to a deeper tension: Resilience is not only about the right technology or model, but also about the incentives of the people shaping the system. Efforts that integrate community knowledge, including farmers’ firsthand accounts of drought patterns, into scientific tools such as satellite imagery could provide a shared foundation for decision-making.
Another challenge is that maps traditionally used in insurance capture only those areas where hazards have occurred in the past. Climate change, however, is redrawing those maps. Wildfires burn where they never did before; floods reach neighborhoods considered to be safe. Scenario forecasting asks the “what if” questions—what if sea levels rise by half a meter? What if extreme heat forces mass migration inland? But these models are limited. If insurers could better anticipate cascading impacts, such as how a wildfire might trigger blackouts, which in turn strain hospitals, they could design better coverage.
Even where resilience measures exist, incentives are often misaligned. Reinforcing a roof or installing flood barriers rarely leads to lower premiums, largely because insurers lack a trusted way to verify these efforts. Without financial recognition, property owners have little reason to invest. Some of the most promising solutions lie in parametric insurance, because funds arrive quickly, and trust in the system grows.
That trust can be strengthened when insurance is organized at the community level. Representatives from the International Research Institute for Climate and Society, part of the Columbia Climate School, described how groups of farmers improved the identification of drought impacts by pooling their knowledge. Our research highlighted the importance of local knowledge, which can sharpen risk identification in ways that satellite data alone cannot do. That resilience is even stronger when insurance is embedded in multistakeholder collaborations to co-develop coverage models.
As one U.S.-based researcher put it: “The biggest pain point is that insurance cannot yet account for compound risks.” Insurance is often sold on annual cycles. Long-term threats to property values and affordability—such as rising seas and intensifying storms—fall outside that window. The system also struggles with communication. Many stakeholders described insurance as “opaque and intimidating,” discouraging participation.
A rare counterexample comes from California’s Jumpstart program: When an earthquake breaches a seismic threshold, customers simply receive a text message confirming a $10,000 deposit—no paperwork, no delays. By making payouts seamless, insurance becomes both accessible and trusted. New financial tools are beginning to supplement these efforts. Catastrophe bonds (also known as “CAT bonds”) allow insurers and governments to transfer risk to investors. In 2024, for example, the World Bank issued four CAT bonds for Mexico, providing nearly $600 million in coverage for earthquakes and hurricanes.
Together, these insights underscore both the potential and the limitations of insurance as a catalyst for resilience. To succeed, the system must evolve to become more data-driven, transparent and closely aligned with the realities of the communities it aims to protect.
Chesang Rotich is a graduate of the M.A. in Climate and Society program at Columbia Climate School, where she focused on climate risk, resilience and innovative insurance solutions. This story was first published on the State of the Planet website, and is published here courtesy of the Columbia Climate School, Columbia University.
