[Climate Insurance Blind Spot] ① Escalating Climate Disasters, Lagging Coverage... Government and Local Authorities Must Take Action

As Livelihood Damage from Heatwaves and Torrential Rains Grows, Premium Burdens Make Enrollment Difficult
Small Business Wind and Flood Disaster Insurance Enrollment Rate at Only 4.6%
Zero Enrollments for KB Insurance's Index-Based Weather Insur

As climate change causes heatwaves, heavy rainfall, and other abnormal weather events to become routine, the nature of damage from such events is also changing. In the past, direct damage such as buildings or facilities being destroyed by typhoons or floods was the main issue. Recently, however, there has been a rise in indirect damage even when properties remain intact, such as suspended work due to extreme heat or declining customer visits leading to a sharp drop in sales. This shift has prompted experts to suggest that climate insurance should not be left only as a matter of individual choice but must be considered a new safety net for the era of climate disasters. Index-based climate insurance, which pays out according to predetermined indicators, and public climate insurance are emerging as alternatives.

Although it is the solar term of Ipchu marking the beginning of autumn, on the 7th, a day when the heatwave exceeding 40 degrees is rampant nationwide including Seoul, a citizen is shielding the sunlight with his hand while moving under the intense sun in Sejong-daero, Jongno-gu, Seoul from the morning. 2026.8.7 Photo by Jo Yongjun

Climate Disasters Intensify... Economic Losses Balloon from $89.3 Billion to $218.9 Billion

According to the Korea Insurance Research Institute as of September 1, the global average annual economic loss from disasters, including severe meteorological events, nearly doubled from $89.3 billion in the 2000s to $167 billion in the 2010s, then surged to $218.9 billion in the 2020s.

In South Korea, the average annual temperature has continued to rise over the past century, which has intensified climate disasters, increasing both the frequency of heatwaves, tropical nights, and heavy rainfall since 2010. According to the Korea Meteorological Administration, the number of annual heatwave days in South Korea increased 2.2 times from 7.7 days in the 1910s to 16.9 days in the 2020s. The number of tropical night days surged 4.2 times in the same period. While the number of rainy days has decreased, total rainfall has increased, resulting in stronger precipitation intensity. Kwon Soonil, a research fellow at the Korea Insurance Research Institute, analyzed, "The number of rainy days per year has dropped by an average of 0.68 days every decade, whereas annual precipitation has increased by 17.8mm every decade, intensifying downpours,” and added, “The frequency of extreme rainfall events with over 50mm per hour is also on the rise.”

Insurance Exists but Can’t Be Used... Small Business Subscription Rate at 4.6%

Despite the increasing risk of climate disasters and the growing need for insurance coverage, actual policy uptake remains low. According to the Ministry of the Interior and Safety, as of the end of May this year, the subscription rates for 'Wind and Flood & Earthquake Disaster Insurance' are only 34.9% for residential buildings, 18.1% for greenhouses used in agriculture and forestry, and 4.6% for small business stores and factories. While the total number of wind and flood & earthquake disaster insurance policies increased from 421,158 in 2020 to 810,879 in 2023, the number fell to 727,814 in 2024. In particular, the number of small business policies peaked at 195,792 in 2022, then decreased to 142,112 in 2023, and plummeted by 61.1% to 55,323 in 2024 compared to the previous year.

Regarding this, a representative from the Ministry of the Interior and Safety explained, "The number of sign-ups surged thanks to corporate sponsorships and financial support, but once eligibility was adjusted due to limited budgets and other reasons, subscribers dropped off." In other words, it wasn’t a lack of demand for climate disaster insurance but rather issues like premium burdens and limited coverage that caused the drop in actual subscriptions. In fact, the government support rate for small-merchant policyholders fell from 70% to 55% in 2024.

Index-Based Insurance Remains at Zero... Small Businesses Say Premium Burden is Too Heavy

Index-based insurance has been cited as an alternative to overcome these limitations. Regular indemnity insurance often struggles to prove loss in cases where no direct damage to assets occurs, such as when work is halted by a heatwave or foot traffic declines. Index-based insurance pays out according to objective weather indicators such as temperature, precipitation, snowfall, and the number of heatwave days.

In line with this trend, KB Insurance introduced an index-based weather insurance product in November last year. This plan was developed as a group policy at the local government or individual market level. Subscription required local government support for premiums or donations from private ESG entities targeting traditional markets. However, as of August 31, there were zero subscriptions. This was due to factors like local leadership changes after the local elections this year and budgets not being secured according to changes in policy direction and allocation at the local level. A KB Insurance representative said, "There is no entity or budget to shoulder the insurance premium, so promoting subscriptions is difficult."

KB Insurance had been continuously discussing a possible group policy with a market merchants’ association in Uijeongbu, Gyeonggi Province, but ultimately the contract was not finalized. During the record heatwaves in July and August of this year, merchants reported sales damages with customer vehicle counts halved. Yet, even a premium of just a few tens of thousands of won was a burden for self-employed individuals struggling to make ends meet, a merchants’ association representative told The Asia Business Daily. The representative said, "With most self-employed business owners relying on their income for living, they cannot afford an insurance plan that requires them to pay 30% of the premium out of pocket," adding, "Unless this out-of-pocket share is lowered, these kinds of insurance policies will remain inaccessible."

As a result, there is a 'climate insurance blind spot,' where small businesses are left out of the safety net due to premium burdens. Accordingly, there are calls to move climate insurance from the realm of individual choice and affordability into the broader social safety net.

Seong Juho, professor of business administration at Kyung Hee University and former president of the Korean Insurance Academic Society, said, "Policy-driven government insurance must go beyond formalities and develop into disaster livelihood insurance that truly protects people's livelihoods," and added, "Now is the time for the government to design and mandate policy insurance, centered around local governments."

Moreover, as much of the loss from climate disasters falls outside the coverage of existing indemnity insurance systems, a coverage gap has emerged. The Korea Insurance Research Institute pointed out, "Of the global economic losses from catastrophic climate events as of 2025, only 49% are covered by insurance."

Boosting Climate Insurance Ultimately Requires Government and Local Authority Engagement... Gyeonggi and Jeju Pilot Programs Worth Watching

Given these circumstances, the government is considering introducing climate insurance to compensate for damage to livelihoods and businesses caused by climate disasters that existing policies do not cover. In March last year, the Financial Services Commission announced support for the development of index-based weather insurance, which would provide coverage for extreme snowfall and cold waves according to predetermined weather indices, rather than requiring damage assessments. By the end of last year, climate insurance had been positioned not just as a private insurance product, but as a policy tool linked to local governments to improve insurance access for vulnerable groups. In May, the Ministry of Climate, Energy and Environment commissioned a study on measures to promote climate insurance and is currently exploring ways to introduce climate insurance to supplement coverage gaps left by traditional insurance in cases of climate disaster.

Some local governments are already operating public insurance programs to address climate disaster risks. Jeju Province has implemented an index-based climate insurance policy that guarantees income loss for daily workers if construction is halted due to a heatwave. Gyeonggi Province operates climate insurance offering coverage for climate-related illnesses and damages to all residents.

A source in the insurance industry said, "Rather than leaving climate insurance merely as a matter of individual choice, expanding public models in which local and central governments share premium costs is necessary."

There have also been calls to operate a communal insurance system where local governments with relatively strong and weak finances are linked together. Professor Seong said, "If the level of disaster coverage differs depending on one’s region of residence, it could cause serious reverse discrimination concerns."

This content was produced with the assistance of AI translation services.