Natural disasters and climate risks will increase due to trends in climate extremes, leading to significant direct and indirect damage for society. By compensating the losses to households and private businesses, insurance can be an effective tool to tackle the issue, but how feasible is it right now?

In the recent article “The state of the art and future of climate risk insurance modeling“, published in the Annals of The New York Academy of Science, Jeroen Aert and other colleagues of the Vrije Universiteit Amsterdam, reflect precisely on the role of climate change in relation to the insurance sector, focusing on strategies to enhance its resilience.

Signing an effective insurance system to cover losses from natural disasters is a complex task: a viable insurance system for natural disasters uses a multitude of variables to optimize its operations. Although recent research has reviewed climate insurance studies in a broad context, there is no systematic review of climate risk models for the insurance sector. In order to provide recommendations for future model development, the paper primarily aims to review and synthesize the current literature, underlining limitations and proposing strategies to overcome such gaps.

In fact, by refining models and expanding geographical and hazard coverage – embracing a forward-looking perspective – the insurance industry will be better equipped to fulfill its role.