Climate Change Forces Insurers to Rethink Disaster Protection

The insurance sector is undergoing a structural transformation due to climate change, with natural catastrophe-related insured losses reaching approximately $140 billion in 2024, the third highest since 1980. In 2025, losses again surpassed $100 billion, marking the sixth consecutive year above this threshold. Carla Sá Pereira, administrator of Portugal's ASF, highlighted that what was once exceptional is now normalized, as climate change intensifies natural phenomena, increases infrastructure vulnerability, and expands exposure for people and property. Alarmingly, over half of economic losses from disasters remain uninsured, creating a growing protection gap.

To address this, insurers must integrate climate risks into their management, strengthen supervisory mechanisms, and develop novel catastrophe financing solutions. Pereira cited the growth of parametric solutions, catastrophe bonds, and risk-sharing funds between private entities and the state, pointing to Portugal's new Natural and Seismic Catastrophe Fund as a model for financial sustainability, solidarity, and climate adaptation. In Cabo Verde, a nation highly susceptible to climate impacts, Executive Administrator Luís Leite of Garantia Seguros noted that the 2025 Storm Erin revealed both insurer responsiveness and market fragilities. While his company settled over 91 million escudos in claims, the event underscored that many families and businesses lack adequate insurance or maintain coverage below their assets' real value.

Leite emphasized the need to foster a culture of prevention and risk management, alongside enhanced insurance literacy and inter-institutional information sharing. Luís Vasconcelos, Chairman of IMPAR Seguros, observed that Storm Erin shifted client perceptions, making natural disaster coverage a recognized essential, particularly for tourism and business assets. Both agree that insurance premiums will likely rise with escalating climate risks and international reinsurance costs. However, they believe access to global reinsurers, coupled with adequate insurer solvency and prudent risk management, can ensure capacity for extreme events. Ultimately, tackling climate change requires a coordinated response from government, regulators, and the private sector, focusing on prevention, increased insurance penetration, and national mechanisms for sharing financial disaster costs. The key takeaway is that adaptability will determine the resilience of both the insurance market and the economy's recovery capacity.