According to a recent article on the World Economic Forum website, as the effects of climate change intensify, global insured losses from natural catastrophes continue to rise. For the fifth consecutive year, insured losses exceeded $100 billion in 2024, while only about 30% of total economic losses were covered by insurance. The remaining 70%, often referred to as the protection gap, is absorbed by governments, businesses, and individuals.
Growing Costs and Reduced Coverage
The increasing frequency of extreme weather events — such as severe storms, wildfires, and flooding — has challenged traditional insurance models. Data from 2013 to 2022 shows that for every 1% increase in insurance premiums, coverage declined by approximately 0.107%. Lower-income households are most affected, often reducing or losing coverage altogether.
As premiums rise, some businesses are opting to relocate rather than face higher insurance costs, leading to broader economic consequences. When businesses withdraw, cities face reduced tax bases and declining collateral values, potentially hindering recovery after disasters.
Cities Investing in Resilience
In response, many cities are developing public-private partnerships to strengthen disaster resilience and attract financing. Broward County, Florida, offers an example: after experiencing recurring flooding and a 400% increase in insurance costs, local officials and businesses implemented a resilience strategy. Measures included improved drainage systems, water storage areas, and seawalls.
Third-party assessments calculated the return on investment (ROI) for these projects, with some scenarios showing returns exceeding 9%. The analysis also prompted local business groups to explore new tax mechanisms to fund future resilience initiatives.
Cape Town’s Portfolio Approach
Cape Town, South Africa, has taken a large-scale approach through its partnership with the Resilient Cities Network. Since 2016, the city has implemented a resilience strategy supported by a directorate that coordinates portfolio management, risk management, engineering, and data science.
The city developed systems to monitor over 2,000 projects simultaneously, resulting in a 97% revenue collection ratio — among the highest globally. This financial stability reassured lenders and helped the city secure additional funding. In May 2025, Moody’s upgraded Cape Town’s credit rating despite increased infrastructure borrowing, reflecting confidence in the city’s fiscal management.
The Resilient Cities Network refers to this strategy as a “city resilience portfolio approach,” treating urban resilience as a coordinated series of investments that enhance both risk management and capital attraction.
New Role for Insurers
To support these efforts, insurers are expanding beyond traditional risk transfer toward proactive risk prevention. Working with the Resilient Cities Network, insurers are helping cities build frameworks for scaling resilience financing.
Technological advancements — such as satellite imagery, Internet of Things (IoT) sensors, and artificial intelligence — enable real-time monitoring and improved disaster modeling. Digital twin technology, which creates virtual city models, allows for more precise planning and assessment of resilience investments. These tools help quantify the financial value of prevention measures and make the business case for resilience clearer.
In some cases, insurers are combining loss data with engineering expertise to fund both restoration and prevention after disasters. This approach seeks to reduce future losses while maintaining financial sustainability.
Six Core Practices for Resilience
The Resilient Cities Network identifies six practices that support portfolio-based resilience strategies:
- Holistic planning that considers interconnected urban systems
- Early stakeholder coordination to include affected parties in planning
- Long-term capital allocation strategies
- Robust data strategies to calculate investment returns
- Strong project management to track progress
- Transparent reporting and accountability
Cities adopting these practices have shown improved access to financing and stronger disaster preparedness.
A Broader Shift
The traditional insurance model — collecting premiums and paying claims — is under increasing strain as climate risks escalate. Rising loss costs and reduced affordability of coverage highlight the need for preventive measures that protect both people and economies.
Urban centers remain at the center of this challenge, often lacking the infrastructure and policies necessary for long-term resilience. Collaboration among cities, insurers, and the broader resilience community may help close the protection gap and mobilize capital toward sustainable risk management.
As resilience financing and preventive strategies gain momentum, the insurance sector’s role is expanding from covering post-disaster losses to actively helping prevent them.
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