The global economy could face uninsured climate-related losses of as much as $41.4 trillion over the next two decades, according to a new report by Moody’s, which warns that a widening gap between economic damage and insurance coverage is emerging as a major threat to financial stability worldwide.
The report highlights the growing “insurance protection gap” — the difference between the total cost of damage caused by natural disasters and the amount ultimately covered by insurers. As climate-related risks intensify, this shortfall is becoming increasingly significant, leaving governments, businesses and households to absorb a greater share of financial losses.
Moody’s cautioned that uninsured losses do not simply disappear. Instead, they are transferred to public finances, corporate balance sheets and individual families, creating long-term pressures that can hinder economic growth, weaken investment and slow development. The ratings agency described the trend as a systemic risk with the potential to affect economies on a global scale.
The challenge is particularly acute in developing nations, where insurance penetration remains relatively low. In many emerging markets, economic expansion is generating new infrastructure, property developments and industrial assets at a pace that insurance coverage struggles to match. As a result, a growing proportion of valuable assets remains vulnerable to climate-related shocks.
The disparity between advanced and developing economies is especially evident when comparing insurance coverage levels. Moody’s found that insurance protection across the Asia-Pacific region accounts for an average of just 0.83% of gross domestic product (GDP). By comparison, the average level of insurance coverage across the G7 economies stands at 2.38% of GDP — nearly three times higher.
This imbalance raises concerns about the ability of less-developed economies to recover from increasingly frequent and severe weather events. Without adequate insurance protection, disaster recovery often depends heavily on government support, emergency borrowing or direct financial sacrifices by affected communities.
The financial risks associated with climate change are being compounded by demographic trends. Moody’s analysis indicates that growing numbers of people are settling in areas vulnerable to flooding, exposing larger populations and greater concentrations of wealth to potential disaster.
As of 2020, approximately 2.7 billion people — around one-third of the world’s population — were living in areas exposed to flood risk. Rising urbanisation, population growth and economic development in coastal regions and river basins have contributed to this trend, increasing the potential human and economic costs of future flooding events.
Scientists and policymakers have repeatedly warned that climate change is likely to increase the frequency and intensity of certain extreme weather events, including heavy rainfall, flooding, storms and rising sea levels. These hazards pose mounting challenges for insurers, governments and financial institutions as they seek to manage growing exposure to climate-related losses.
Moody’s report suggests that narrowing the insurance protection gap will be critical in strengthening economic resilience. Without greater insurance coverage and improved risk management, the burden of climate-related disasters is expected to fall increasingly on public finances and private citizens, potentially undermining global economic stability in the decades ahead.
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