Insuring Against Extreme Heat Navigating Risks in a Warming World 2025

The global picture and the insurance protection gap Extreme heat and related climate perils are not limited to California – a warmer and drier climate is already compounding the risk of wildfires globally across a wide range of ecosystems. Indirect effects, including post-event air quality degradation, are disrupting workers and dragging on economic growth. Millions of homeowners worldwide are on the front line of an insurance affordability crisis. Insurance deserts are forming and expanding across Australia,35 Asia36 and elsewhere. As insurance deserts expand, more homeowners and communities are left without coverage amid heightened climate risk. In 2023, only 38% ($108 billion) of global economic losses were insured. This ratio is at risk of becoming more unbalanced as insurance companies struggle to stay active in climate-risk-prone communities. The gap between insured and uninsured losses points to the global “insurance protection gap” – a measure of people and communities without access to insurance. The insurance protection gap is a key indicator of economic and societal resilience to climate perils, as a wide protection gap lowers the financial ability of economies to recover from disasters. The insurance protection gap varies widely by geography. For example, about 58% of economic loss from natural disasters is insured in North America, compared to 29% in South Africa and only 9% in India.37 In 2023, the global insurance protection gap was estimated at 74.3%, indicating that three-quarters of climate-related disasters – amounting to approximately $385 billion in damages – were not protected by insurance. Furthermore, the little progress that has been made is heavily weighted towards upper- and middle- income countries, whereas the insurance protection gap has persisted in lower-income countries.38 Closing the protection gap will build and accelerate resilience, empower vulnerable communities to thrive amid climate risks, incentivize less risky behaviour and ultimately save lives. It will also allow the industry to enter untapped markets and ignite economic growth to even beyond pre- disaster levels. 2023 had a record number of billion-dollar insured losses from extreme weather FIGURE 4 US Non-US Americas APAC EMEA010203040 2000 2005 2010 2015 2020 Note: APAC = Asia and the Pacific; EMEA = Europe, the Middle East and Africa. Source: Aon. The insurance protection gap in recent climate events in India TABLE 1 Year Natural disaster Economic loss Insured loss Insurance gap 2020 Cyclone Amphan $13 billion $1.5 billion $11.5 billion 2021 Cyclone Yaas $2.5 billion $200 million $2.3 billion 2021 Tamil Nadu floods $1 billion $100 million $900 million 2022 Assam floods $3 billion $300 million $2.7 billion 2023 Himachal Pradesh floods and landslides $1.5 billion $150 million $1.35 billion About 58% of economic loss from natural disasters is insured in North America, compared to 29% in South Africa and only 9% in India. Source: Bajaj Allianz General Insurance using data from SwissRe and Aon. Insuring Against Extreme Heat: Navigating Risks in a Warming World 12