Climate change has proven to be a major stumbling block to development in emerging markets. Floods in Thailand, typhoons in the Philippines, and droughts in Africa and India have cost thousands of lives and stalled economic development. Temperatures are likely to rise even higher, which will only worsen the impact of climate change. And extreme heat can affect productivity and economic activity. In 2015, for example, when temperatures across Iraq topped 50 degrees Celsius, the government called for a mandatory four-day holiday. Such incidents are likely to become common.
In emerging countries, insurance markets are under development and don’t play a major role in helping businesses mitigate climate change threats. Because insurance is viewed as a luxury product, many emerging markets have yet to prioritize the regulations and standards that insurance markets needs to function.
But now a number of factors are driving emerging markets to use insurance as a tool to adapt their countries to the changing climate. The insurance industry has been looking to emerging markets, where penetration rates have historically been low, in order to grow their business. In addition, cellular and digital technologies now make it possible to reach customers in remote areas.2 Many international donors are also realizing the importance of heading off climate change to promote growth in emerging markets. Their efforts have shifted from programs that focus on distributing aid after a disaster to complementary programs that also reduce the impact of natural disasters, such as insurance.
Finally, as awareness about climate change risks grow, people and businesses are looking for solutions that minimize the impact of climate related threats. Many governments are further boosting awareness by taking steps to increase financial literacy in their countries. As a result, more people are starting to see insurance as one tool that can help them address climate change.