Germany’s solar feed-in tariff turned a subsidy into a self-sustaining market. This brief examines whether insurance premium subsidies could do the same for climate adaptation.
Insurance is a proven adaptation tool, but it remains severely underused in low and middle-income countries, where affordability constraints and rising climate and nature risks are widening the protection gap.
This engagement brief argues that premium subsidies can scale insurance uptake, especially if they reward risk reduction, not just lower cost. A resilience-linked approach ties subsidy levels to measurable adaptation outcomes, helping governments, re/insurers, donors, corporates and supply-chain actors share the cost of protection while strengthening sovereign resilience. The same logic extends to sovereign disaster risk finance, where it could operate at national scale.
Why this matters
When climate risks rise, insurers retreat and governments absorb the losses. Fiscal burdens mount, borrowing costs rise, and the space to invest in adaptation shrinks, a cycle that can end in sovereign debt distress.
Brazil and Uganda already show the pattern: insurance uptake rises and falls almost in lockstep with subsidy budgets. Even at peak funding, coverage falls well short of total need, evidence that the binding constraint is the size of the subsidy, not appetite for the product.
Designed well, subsidies can trigger a flywheel: wider coverage, deeper risk pools, lower premiums, and eventually a market that no longer needs the subsidy at all.
Looking ahead
The findings will inform ongoing engagement with governments, re/insurers, corporates and rating agencies on how to design and scale resilience-linked subsidy schemes.
If we are to tackle the crisis of insurability in a more volatile world, the subsidies supporting it must be designed to build resilience, not just reduce cost.
Authored by Samuel Brown, Gustavo Martins and Arend Kulenkampff. For comments or queries, contact samuel.brown@naturefinance.net.