More insurance coverage builds stronger climate defenses, drives economic growth, and can secure a sustainable future for climate-vulnerable communities. Yet, in many regions, including the Pacific, the industry's potential to blunt the impact and costs of climate disasters remains largely untapped and underestimated.  

The Pacific region faces an unfortunate double-whammy: it is simultaneously one of the most uninsured and highly exposed to natural perils in the world. Insurance coverage ranges from 2 percent to 21 percent, across Fiji, Papua New Guinea (PNG), Samoa, Tonga, and Vanuatu. Exposure to multiple hazards threatens between one to 30 percent of the population of Fiji, PNG, Samoa, Solomon Islands and Kiribati. In Fiji and PNG, 30 percent and 15 percent of the respective population are at risk from climate shocks hitting simultaneously.

The financial toll is steep: the costs of natural disasters will rise to 12.7 percent of the Pacific’s annual Gross Domestic Product by 2100 without sufficient adaptation measures. Low insurance coverage and relentless climate shocks batter communities, spike government spending and strains development and economic growth. It also creates a glaring protection gap that is largely borne by region’s vulnerable low-income earners – farmers and fishers, micro-businesses and informal sector workers. 

The insurance industry has a clear role to play in bolstering Pacific climate resilience. Governments and development agencies must urgently recognise the potential of insurance to provide a financial safety net for households, businesses and communities. A coordinated and concerted multi-stakeholder effort is needed to bring insurers to the table and harness the industry’s sophisticated risk transfer and risk management expertise to meet development objectives and advance the 2030 Agenda for SDGs. 

The UN Capital Development Fund (UNCDF), UN Development Programme (UNDP) and UN University Institute for Environment and Human Security has developed a local market ecosystem of private and public sector partners to deliver innovative micro and meso insurance solutions suited to local needs. Through our multi-stakeholder initiative, the Pacific Insurance and Climate Adaptation Programme (PICAP), we have introduced, tested and scaled a type of product that is novel for the region, called parametric or index micro-insurance.

Payouts are based on predetermined triggers or indices, such as windspeed, the amount of rainfall over a given period or the strength of an earthquake, rather than actual losses. There is no requirement for loss assessments, which enables the rapid deployment of funds through digital channels following a ‘trigger’ climate event. 44,813 households (20,962 women) are currently covered by some form of climate based parametric insurance products in Fiji, Samoa, Papua New Guinea, Tonga and Vanuatu.

The UNCDF and UNDP convened the multi-stakeholder ecosystem to harness the insurance sector’s potential and build local market capacity to deliver innovative solutions at the scale and speed needed to drive impact. The Pacific’s distinct risk profile, telling a story of extreme climate vulnerability, has long steered regional insurers toward indemnity products that were unaffordable for the mass market. Parametric insurance has changed the calculus. Not only are local insurers trading parametric insurance products in the competitive marketplace, but they have also actively participated in co-creating the solutions. Still, launching a novel financial product and navigating it through testing, regulatory approval, scaling, and distribution demanded strategic partnerships with industry players.

PICAP developed several regional and global partnerships, ranging from farmer cooperatives, NGOs and regional central banks to government ministries, mobile network operators and private insurers and even leading firms like Lloyds and SCOR. Laws and regulations have had to evolve to accommodate the new products, and substantial resources have been invested to train implementing partners, including the private sector, and educate the market. None of this could have been achieved without the ecosystem of partners, who are the driving force of the project and will ensure its sustainability. These entities have all assembled with a singular purpose: building the resilience of climate vulnerable populations in the Pacific. 

By 2024, PICAP’s investments had already begun reshaping the Pacific’s insurance landscape and driving new innovations. 37 new or improved versions of parametric products were introduced across eight Pacific countries, reaching 44,813 households – over half of them women-led, 1,626 persons with disabilities and 2,000 social welfare recipients. In Fiji alone, over 1,600 payouts totaling almost FJ$300,000 were made after rainfall events. Local insurers like Sun Insurance and Tower have co-created solutions, with FJ$3.1 million in private-sector investments flowing into the ecosystem.

One of PICAP’s key achievements has been the development and rollout of parametric insurance tied to anticipatory action, a fresh and proactive approach to protecting Pacific communities. In partnership with the UN Office for Disaster Risk Reduction (UNDRR), a market-driven scheme was launched in Fiji in 2024 that delivers 20 percent of the total sum insured before a cyclone hits, helping households prepare by securing supplies or strengthening homes in advance. It’s a practical shift from traditional insurance, and a similar anticipatory action product will soon be launched in Samoa and other parts of the region. 

While these are important developments, the risks for insurers remain heightened and potentially debilitating. To further ‘de-risk’ Pacific markets, UNCDF is working with partners on an insurance guarantee and premium financing facility that will aim to ease the burden on insurers, stimulate demand by pre-financing insurance premiums through concessional loans and improve access. Extreme weather events are expected to become more unpredictable, frequent and severe due to climate change – a scary prospect for insurance companies. Concessional financing and guarantees provided through a non-profit-led insurance facility will help tackle the demand-side challenge of beneficiaries lacking upfront funds to afford premiums and ensure coverage is extended to the most vulnerable. On the supply side, it will empower insurers with the confidence and resources to cast a wide net of offerings and take on more risk. 

These developments put the insurance industry at the centre of efforts to close the protection gap in the Pacific. As it stands, low insurance coverage and escalating climate risks threaten communities and economic growth in the region. Parametric insurance, with its quick payouts and affordable pricing, presents an opportunity to improve coverage and bolster the resilience of vulnerable communities. With the support of development partners and regional governments, the industry can help us build a safer and more secure future for Pacific communities facing an intensifying climate challenge.