The global economy could suffer uninsured climate-related losses of up to $41.4 trillion over the next 20 years, according to a new report from Moody’s, which warns that the growing gap between economic losses and insurance coverage is becoming a serious threat to financial stability worldwide.
The report highlights the widening “insurance protection gap” — the difference between the total financial damage caused by natural disasters and the amount covered by insurers. As climate change drives more frequent and severe weather events, this gap is expanding, leaving governments, businesses and households to shoulder an ever-greater share of the economic burden.
Moody’s cautioned that uninsured losses do not simply disappear. Instead, they are absorbed by public budgets, corporate balance sheets and individual families. Over time, these costs can weaken economic resilience, slow investment, constrain development and place increasing pressure on national finances. The agency warned that the issue has evolved beyond a sector-specific concern and now represents a systemic risk with potentially far-reaching consequences for the global economy.
The challenge is particularly pronounced in developing countries, where insurance penetration remains comparatively low. Many emerging economies are experiencing rapid growth, resulting in the construction of new infrastructure, housing developments and industrial facilities. Yet insurance coverage has often failed to keep pace with the rising value of these assets, leaving substantial portions of economic activity exposed to climate-related risks.
The disparity between advanced and developing economies is stark. Moody’s found that insurance coverage across the Asia-Pacific region averages just 0.83% of gross domestic product (GDP). In contrast, the average level of insurance protection among G7 countries stands at 2.38% of GDP, nearly three times higher.
This imbalance raises concerns about the ability of lower-income and emerging economies to recover from disasters. In the absence of adequate insurance, recovery efforts frequently depend on government assistance, emergency borrowing, international aid or direct financial sacrifices by affected households and businesses. Such measures can place significant strain on public finances and slow economic recovery.
Climate-related financial risks are also being amplified by demographic and urbanisation trends. Moody’s analysis shows that increasing numbers of people are settling in areas vulnerable to flooding, placing larger populations and greater concentrations of wealth in harm’s way.
As of 2020, approximately 2.7 billion people — roughly one-third of the global population — lived in regions exposed to flood risk. Rapid urban growth, population expansion and economic development in coastal zones, river basins and low-lying areas have contributed to this trend. The concentration of people and assets in these locations increases the likelihood that future flooding events will result in significant economic and social losses.
Scientists have long warned that climate change is likely to intensify many forms of extreme weather, including heavy rainfall, severe storms, coastal inundation and rising sea levels. These hazards are expected to increase both the frequency and severity of natural disasters in many parts of the world, creating mounting challenges for insurers, governments and financial institutions.
The report underscores the importance of strengthening insurance coverage and improving risk management frameworks. Expanding access to insurance, investing in climate-resilient infrastructure and encouraging disaster preparedness could help narrow the protection gap and reduce future economic losses.
Without decisive action, Moody’s warns, the growing burden of uninsured climate-related damage may increasingly fall on taxpayers, businesses and communities, threatening economic growth and undermining global financial stability for decades to come.