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

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  • Monasterolo, Irene
  • Naumann-Woleske, Karl
  • Russo, Carmine

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.

Suggested Citation

  • Monasterolo, Irene & Naumann-Woleske, Karl & Russo, Carmine, 2025. "Climate insurance protection gap: a literature review and a research agenda for decision making," CEPR Discussion Papers 20641, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20641
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    File URL: https://cepr.org/publications/DP20641
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    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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