Where and for whom is the evidence weakest?
The biggest evidence gaps are geographic and hazard-specific. A comprehensive 2024 review of climate risk insurance modeling found that most studies focus on flooding in developed countries, leaving developing nations and hazards like drought, wildfire, and extreme heat severely underrepresented [1]. This matters because the people most vulnerable to climate impacts—small farmers, informal workers, coastal communities in low-income countries—are precisely those least studied. For example, a 2025 study of micro-enterprises in the Philippines found that entrepreneurs strongly prefer climate risk insurance over other strategies, but rural businesses and women were less willing to pay for it, likely due to lower financial literacy [2]. Without evidence from these settings, insurers cannot design products that are affordable and trusted.
Chronic physical climate risks—like gradual temperature rise or sea-level creep—don't fit traditional insurance models at all. A 2025 analysis from Russia concluded that these chronic risks fail to meet basic insurance criteria (e.g., randomness, measurable loss), meaning they cannot be covered by standard policies [3]. This leaves a critical protection gap for the slow-onset changes that will affect billions.
Why are current models failing to predict future risk?
Insurance models are stuck looking backward. The 2024 review found that less than half of studies incorporate climate change scenarios, and an even smaller fraction include socioeconomic development scenarios like population growth or urban expansion [1]. This means premiums and coverage are based on past weather, not future reality—a dangerous mismatch as risks escalate. The review recommends developing forward-looking models at finer spatial scales to capture local risk patterns, but this work is largely undone.
Demand-side evidence also lags. A 2023 study of U.S. homeowners showed that beliefs about climate change directly affect flood insurance uptake: people who are worried about global warming buy more coverage, while those who dismiss it drop policies after premium hikes [4]. This partisan polarization in risk perception is a real-world barrier that models rarely account for, yet it determines whether insurance works as a risk management tool.
Which sectors and risk types are left out?
Non-agricultural commercial sectors are almost entirely ignored by research. The 2024 review notes a striking lack of studies on insurance for businesses outside farming—such as manufacturing, retail, or tourism—even though these sectors face major climate disruptions [1]. This gap means insurers have little evidence to price policies for small shops, factories, or service providers.
Parametric insurance—which pays out automatically when a trigger like temperature or rainfall exceeds a threshold—offers promise for hard-to-insure risks like extreme heat. A 2025 report describes parametric heat insurance policies already operating in India, designed to support women workers in the informal economy who are disproportionately affected by heatwaves [5]. These policies are combined with cooling centers and early warning systems, but the evidence base is still thin: only a handful of pilots exist, and their long-term effectiveness is unmeasured. Scaling them requires more data on trigger accuracy, payout speed, and actual impact on livelihoods.
About These Sources
This answer is built on 5 peer-reviewed studies — published from 2023 to 2025, 4 from 2024 or later, 3 in Q1 journals — selected as the most relevant from 5 studies that passed quality screening, drawn from 60 papers retrieved from a database of over 500 million.
Sources used in this answer
The state of the art and future of climate risk insurance modeling
In a comprehensive literature review, the authors found that less than half of climate risk insurance studies use forward-looking climate scenarios, and even fewer consider socioeconomic changes; developing countries and non-flood hazards are underrepresented, and the commercial sector is largely ignored.
Vulnerable entrepreneurs’ preferences for climate risk management: A discrete choice experiment with micro-enterprises in the Philippines
In a discrete choice experiment with 625 micro-enterprises in the Philippines, climate risk insurance was the most preferred risk management strategy, but rural enterprises and women were less willing to pay, likely due to lower financial literacy; participation in climate information events increased willingness to invest.
Methodological Approaches to Insurance of Agglomerations and Territories against Climate Risks
This analysis of climate risks in Russia found that chronic physical risks (e.g., gradual temperature rise) do not meet standard insurance criteria, limiting coverage options, while emergency physical risks (e.g., floods, storms) are more insurable.
Climate risk perceptions and demand for flood insurance
Using U.S. homeowner data, the study showed that beliefs about climate change significantly influence flood insurance demand: individuals worried about global warming buy more coverage, while those who dismiss climate risk are more likely to drop policies after premium increases, with partisan polarization driving these differences.
As Extreme Heat Threats Grow, Can Heat Insurance Offer Protection?
This report describes parametric heat insurance policies in India that target women workers in the informal economy, combining payouts with cooling spaces and early warning systems; evidence on long-term effectiveness is still limited.