Closing the Disaster Protection Gap: Public-Private Insurance for Climate Resilience

The World Bank report advocates for Public-Private Insurance Programs (PPIPs) to help emerging economies manage the financial risks of natural disasters through tailored, scalable solutions. It emphasizes collaboration between governments, insurers, and development partners to close the disaster protection gap and build long-term resilience.

In an era marked by intensifying climate threats, a new policy note published by the World Bank and authored by Bianca Adam, Stephane Hallegatte, and Olivier Mahul provides a timely roadmap for building financial resilience in vulnerable nations. The document draws on contributions and insights from the Organisation for Economic Co-operation and Development (OECD), the International Association of Insurance Supervisors (IAIS), and the Bank for International Settlements (BIS). At its core lies a clear message: closing the protection gap in disaster risk coverage requires innovative partnerships between public institutions and the private insurance industry, particularly in emerging markets and developing economies (EMDEs).

Why Insurance Matters More Than Ever

With nearly one in five people in the developing world projected to face a severe climate-related shock in their lifetime, the need for financial protection has never been more urgent. Yet, many governments are fiscally constrained and forced to prioritize immediate recovery over long-term adaptation. Disaster Risk Finance and Insurance (DRFI) tools, including insurance, play a vital role in cushioning the economic blow of disasters by providing pre-arranged funding. The global insurance protection gap stands at 62 percent, but in many developing countries, it exceeds 90 percent, meaning the vast majority of economic losses from natural hazards go uninsured. BIS research shows that uninsured losses, not the disasters themselves, have the most devastating macroeconomic impacts. In contrast, insured disasters can even facilitate economic recovery.

However, insurance markets in low-income countries are often underdeveloped or non-existent. On the demand side, affordability issues, low awareness, limited financial literacy, and overreliance on donor aid all hinder uptake. On the supply side, the industry faces challenges such as lack of risk data, insufficient capital, and high transaction costs. The proposed Public-Private Insurance Programs (PPIPs) aim to address these constraints by drawing together the strengths of governments, private insurers, regulators, and international development partners.

Designing Solutions that Fit National Realities

PPIPs are not a one-size-fits-all solution. Their design must reflect each country’s policy objectives, financial capacity, and market maturity. The report offers a flexible framework that adapts to a spectrum of national contexts. For example, in countries with weak financial systems and low insurance penetration, adaptive social protection programs offer a promising starting point. Malawi exemplifies this model. Through a combination of a government contingency fund and sovereign parametric insurance, Malawi was able to provide emergency cash transfers to over 140,000 households during the 2023–2024 drought. This marked the first time in Africa that an insurance product directly supported a shock-responsive social protection program.

In the Horn of Africa, the World Bank’s DRIVE initiative bundles insurance, banking, and digital services to protect over 1.5 million pastoralists across Ethiopia, Kenya, and Somalia. By pooling risks regionally and integrating multiple financial tools, the program offers cost-effective protection in fragile contexts. In contrast, countries with stronger financial infrastructure can implement more sophisticated PPIPs that leverage domestic insurance markets. Turkey’s Catastrophe Insurance Pool (TCIP), established with World Bank support, offers mandatory earthquake coverage and now insures more than 50 percent of the urban population.

From Social Protection to Public Asset Coverage

The reach of PPIPs goes beyond individuals and small businesses. These programs can also secure critical public services and infrastructure. Morocco, for instance, runs a dual-layer catastrophe insurance system. While households with property insurance receive coverage through compulsory extensions, uninsured households are supported through a public Solidarity Fund. In the aftermath of the 2023 Al-Haouz earthquake, the fund disbursed around US$300 million, including a significant payout from a parametric reinsurance policy.

Indonesia provides another compelling example. In 2019, the country launched a State Assets Insurance Program to insure over 11,000 public buildings, including schools and hospitals. This move not only ensured quicker recovery from disasters such as floods and earthquakes but also allowed ministries to avoid disruption in public services. Jamaica’s model, combining CAT bonds, regional risk pools, and contingent credit lines, highlights how layered financial strategies can deliver liquidity for both short-term relief and long-term reconstruction.

A Global Push Toward Financial Resilience

The World Bank's experience shows that effective PPIPs require strong political commitment, local ownership, and sustained technical support. Countries must embed PPIPs within broader disaster risk finance strategies that combine insurance with reserves, contingent credit, and public investment. The concept of risk layering using different financial instruments for different levels of risk and frequency is central to this approach. Insurance is most effective for severe, low-frequency events, while budget reallocations and credit lines can handle more routine shocks.

The report outlines three key priorities to advance this agenda: scaling up PPIPs tailored to local needs, promoting domestic insurance markets, and using insurance to incentivize risk reduction. These goals are supported by global initiatives such as the Global Shield against Climate Risks (a collaboration between the V20 and G7), the ASEAN+3 Disaster Risk Finance Initiative, and the Insurance Development Forum. These platforms help countries access data, technical expertise, and international capital to build resilient financial systems.

Ultimately, the message is clear: the time to act is now. As climate risks escalate and vulnerabilities deepen, EMDEs cannot afford to wait for disaster to strike before mobilizing resources. By building inclusive and adaptive public-private insurance programs today, countries can protect lives, livelihoods, and development gains for the future.