How to close the $223 billion climate protection gap

From catastrophic flooding in Spain, to the second worst wildfire season on record in Canada and record-breaking heatwaves across South America and the Caribbean, the world has experienced a new level of climate disruption in recent years. Climate risks are intensifying and compounding every year, creating shocks to governments, trade systems, workforce health and more.

In 2024 alone, Aon found that weather-related disasters caused $368 billion in economic losses around the globe. This included the destruction of physical assets like homes, factories and power grids, disruption of critical supply chains, business closures and halted production across entire sectors.

But perhaps an even more surprising finding: sixty percent of those losses, $223 billion, went uninsured, creating a climate protection gap. This lack of asset protection can devastate local economies, delay recovery for entire industries and threaten human health in communities around the world, especially in climate-vulnerable regions.

This is a sign that our global risk management infrastructure may not be able to keep up with the reality of our changing climate.

As extreme weather events continue to become more frequent and severe, we need a new approach to risk: one that better protects the world’s most vulnerable communities when disaster strikes.

Due to the nature of extreme climate events and climate risks, the communities least prepared to respond to disasters – particularly in the Global South – are the ones who bear the brunt of the global climate protection gap.

Recovery from an extreme weather event requires immediate liquidity; communities need funds quickly to restore public infrastructure and homes. The absence of insurance coverage means extended rebuilding periods and deepening socioeconomic inequality.

In 2024, Central and South America experienced a cascade of extreme weather events, from flooding and landslides to wildfires and droughts, resulting in an at least $24.4 billion in economic damage and over 430 reported fatalities.

Across much of the region, insurance coverage remains limited, especially for rural communities, informal economies and low-income households. The financial burden of rebuilding falls largely on governments and individuals, stretching public resources past their limits and leaving local areas destroyed.

But this outcome is not inevitable. Experts are rethinking traditional systems of risk management, designing more adaptive solutions to meet the future needs of a rapidly changing climate. Through expanded access to financial tools such as parametric insurance, catastrophe bonds and public-private financing solutions, as well as investments in infrastructure and climate-adaptive systems, governments and communities can reduce recovery time, build resilience and narrow the protection gap.

Traditional insurance models can be too slow and complicated for the fast-moving nature of climate disasters. In regions where resources are limited, waiting weeks or months for payouts can mean the difference between a swift recovery or a long-term crisis. This is where parametric insurance offers the opportunity for a transformational shift.

Unlike traditional coverage, parametric insurance pays out automatically when specific conditions (like wind speed or rainfall) are met. This makes it possible for communities to access funds quickly and accelerate the recovery process.

Parametric solutions are especially relevant in areas where traditional insurance is not accessible. In small island nations and agricultural regions, these products have been extremely useful in providing rapid relief. As a result, demand for parametric insurance is growing fast in Asia-Pacific, Sub-Saharan Africa and the Caribbean.

Catastrophe (cat) bonds also work to close the protection gap. These financial instruments allow governments and insurers to transfer disaster risk to investors. If a major climate event occurs, such as a tropical cyclone or earthquake, the bond pays out instantly. If the event does not happen, the investor keeps their return.

This structure opens new channels of capital to support climate resilience. At the end of 2024, the catastrophe bond market had grown to nearly $50 billion, with many deals offering double-digit returns to investors. This makes cat bonds not only a lifeline for at-risk nations, but an increasingly attractive asset class in global capital markets.

By turning climate risk into a tradable asset, cat bonds align financial incentives with real-world recovery.

While parametric insurance and cat bonds offer promising tools for climate resilience, many underinsured and high-risk regions can still face significant barriers to coverage. This is where public-private partnerships can play a vital role. By combining the resources and expertise of governments, multilateral institutions and the private sector, these collaborations can expand access to protection where it’s needed most.

Public-private finance models not only fund both risk mitigation and recovery efforts, but they can also unlock capital in conflict-affected regions. Aon recently partnered with the U.S. International Development Finance Corporation and Ukraine’s Ministry of Economy to launch a $350 million insurance facility, which aims to accelerate new capital investment and stimulate economic recovery amidst ongoing conflict. As a result, companies are reopening facilities and increasing jobs, creating stability during a time of uncertainty. The same principles can be applied to communities affected by natural catastrophe events.

We can’t meet today’s climate risks with yesterday’s tools. As weather-related disasters grow in frequency and intensity, the imperative is clear: we must shift from reactive recovery to proactive resilience.

That means investing in innovative risk transfer models, expanding access to financial protection and strengthening infrastructure before disaster strikes. Parametric insurance, catastrophe bonds and public-private partnerships are already helping communities protect what matters most. Closing the $223 billion climate protection gap will take foresight, collaboration and bold action.

Let’s lead with readiness — and ensure the world is protected for whatever tomorrow brings.