Asia and Latin America show the largest gaps in insurance protection against natural disasters

The effects of climate change are causing widespread devastation across the world, exacerbated by significant insurance gaps in certain regions. Asia is the region with the largest insurance protection gap, at 82.8%, meaning that only 17.2% of total losses from natural disaster-related risks are covered by insurance contracts. Next is Latin America, which has shown an average gap of 81.0% over the past decade, leaving just 19% of total losses insured. These figures stand in stark contrast to North America, which boasts the smallest protection gap in the world, with an average of 43.2% of losses not covered by insurance contracts, despite currently facing tropical cyclones, winter storms, and wildfires.

The significant natural disaster insurance gaps (NatCat Gap) in many regions are primarily caused by low insurance penetration in many emerging economies, a greater concentration of the population in cities and high-risk areas, and the increased frequency and severity of extreme events due to climate change.

These are some of the findings of the report Climate Change: Extraordinary Risks and Public Policies, which was presented today by MAPFRE Economics at COP30. The report analyzes the growing impact of climate change on extraordinary risks covered by the insurance industry, against a backdrop of intensification of extreme weather events and the widening of the insurance protection gap for natural disasters.

According to most experts, global warming is considered to be playing a decisive role in the intensification and frequency of climate-related natural disasters, particularly what are known as “secondary perils”: lower-intensity, higher frequency climate events such as wildfires, droughts, heat waves, storms, strong winds, floods, and snowfall. In the current context of insurance and reinsurance activity, secondary perils are causing a growing impact in terms of human lives and economic losses (accounting for more than half of all recorded losses), as well as extraordinary damage to infrastructure and ecosystems.

Mónica Zuleta, Group Head of Sustainability at MAPFRE, and Ricardo González, Director of Analysis, Sectorial Research, and Regulation at MAPFRE Economics, participated in the presentation. González noted that “insured losses resulting from catastrophic events have shown a sustained long-term upward trend, with an annual growth rate of 5% to 7% since 1992, according to the Swiss Re Institute.” In this regard, he also emphasized that “although this increase is often attributed to the impact of climate change, this phenomenon can also be explained by other factors, such as economic and population growth or expansion in vulnerable areas with poorly developed early warning systems or evacuation and prevention plans, or rising property values.”

The Director of Analysis, Sectorial Research and Regulation at MAPFRE Economics also indicated that “the economic losses caused by extreme weather and climate events are increasing, and they are expected to continue rising due to the growing frequency and severity of disasters caused, among other factors, by global warming.” According to MAPFRE’s research, in 2024, these catastrophes caused economic losses of over 300 billion dollars for the ninth consecutive time, a 14% increase, of which almost 145 billion dollars were insured.

Reducing the gap: a public policy challenge

Closing the insurance protection gap for catastrophic risks is a challenge that requires coordinated action by insurance companies with all levels of government, as without adequate protection and compensation mechanisms, climate risks may become uninsurable or unaffordable.

In this regard, the report highlights the importance of developing collaboration frameworks between public administrations and the insurance industry to manage and share disaster risks—for example, through organizations like Spain’s Insurance Compensation Consortium, which provides compensation for extraordinary losses. It also mentions the importance of promoting incentives for prevention and risk reduction of adverse climate events, such as early warning systems that provide real-time data to estimate the intensity and path of storms, floods, heat waves, or wildfires. It also emphasizes the need to expand insurance coverage through measures like parametric solutions, which deliver a fast and efficient response to climate disasters by making automatic payments based on measurable, predefined parameters such as wind speed, rainfall, or drought intensity.

The role of MAPFRE

“Climate change represents one of the main challenges to social and economic stability and poses a major challenge for the insurance industry, which must play a key role in strengthening societal protection and well-being,” stated Mónica Zuleta, Group Head of Sustainability at MAPFRE. She also highlighted that MAPFRE plays a pivotal role in setting ambitious objectives and commitments, such as achieving carbon neutrality by 2030 in all countries; reaching NetZero in its insurance and investment portfolios by 2050; promoting a fair energy transition to help companies transform while continuing to generate wealth in an increasingly environmentally responsible way; and developing innovative solutions to support decarbonization and adapt to changing climate demands, including coverage that supports renewable energy, electric mobility, and regenerative agriculture, among other initiatives.

The Group Head of Sustainability went on to reference some of these initiatives, such as parametric insurance, which MAPFRE promotes through its investment in Blue Marble; the development of catastrophe bonds, which function like insurance and allow natural disaster risks to be transferred to capital market investors; the MAPFRE Renewable Energy II Fund, an innovative European project investing in biomethane, a 100% green biofuel; and Bioseguro, which the company is presenting at COP30 with the aim of supporting reforestation and natural regeneration projects after extreme events while maintaining its capacity to generate carbon credits.

You can read the report here.