Climate change is no longer merely an environmental concern; it has emerged as a profound challenge to financial security and social stability. Natural hazards such as cyclones, floods, river erosion, and waterlogging are intensifying across the globe, casting deep uncertainty over the future of insurance protection. While risks are escalating at an unprecedented pace, questions abound as to whether financial mechanisms are adequately equipped to cope with these mounting threats.
At its core, insurance functions by pooling risk and relying on predictability. Premiums collected from a large number of policyholders provide a safety net for the relatively few who suffer losses. Yet climate change has fundamentally undermined this predictability. Disasters no longer follow conventional seasons or familiar patterns, complicating risk assessment and the pricing of premiums. This growing complexity directly impacts the availability and affordability of coverage, leaving many vulnerable.
The realities are particularly stark in Bangladesh, one of the world’s most climate-vulnerable countries. Frequent floods, powerful cyclones, and coastal surges inflict severe damage on agriculture, housing, and small businesses. Despite these significant risks, insurance penetration remains limited. Post-disaster recovery often depends heavily on personal savings, loans, or government aid, prolonging recovery times and deepening cycles of poverty.
The insurance sector in Bangladesh faces a dual challenge: risks are extremely high and unpredictable, while the capacity of the population to pay premiums is constrained. Conventional insurance models struggle to function effectively under these conditions. Moreover, realistic premium rates that truly reflect the risk could easily become unaffordable for ordinary citizens. Consequently, while insurance could serve as a crucial social protection mechanism, in practice its coverage remains modest.
Here, policy intervention is essential. Leaving high-risk areas entirely to market forces risks excluding those most in need, whereas excessive regulation can hinder sustainable operations of insurers. Bangladesh must adopt an integrated approach, aligning climate adaptation, disaster management, and insurance strategies. By linking risk-reduction initiatives with effective coverage, the country can create a more resilient financial safety net.
In the era of climate change, insurance is no longer merely a financial product; it is intimately connected to livelihoods and long-term stability. Without broad, inclusive insurance protection, repeated disasters will continue to devastate the same communities. Addressing this reality requires visionary policies, innovative insurance models, and coordinated financial planning centred on climate risk.