Asia and the Pacific sit on the wrong side of a stark and growing divide in disaster risk financing. Last year, an estimated 88% of losses from disasters in Asia were uninsured.
While some economies have deep insurance markets and established financial systems, the most vulnerable remain severely under-protected. So when disasters strike, the countries least able to absorb shocks are the ones that bear the greatest economic and social costs.
Closing this divide requires more affordable risk financing, stronger regional cooperation, better risk data and wider access to insurance and financial services. Disaster risk financing – financial tools like insurance, risk pools, contingent credit, and catastrophe bonds – is a keystone of public and private sector resilience.
Last week ADB announced a new pre-disaster financing initiative to support Asia and the Pacific’s most vulnerable countries strengthen disaster resilience, but the scale of loss and damage is staggering. Between 2004 and 2023, disasters claimed an average of 65,000 lives each year worldwide. Total economic losses for the same period average above $200 billion annually. Global disaster losses totalled $328 billion in 2024 – of which only 43% was insured.
These “protection gaps” – economic losses that are not covered by financial protection – means that households, businesses, and governments bear much of the recovery cost, often with long-lasting consequences for communities, livelihoods, and infrastructure. Most governments in the region still rely on post-disaster budget reallocations and emergency borrowing rather than pre-arranged instruments. Only a handful of economies access more sophisticated tools like sovereign disaster funds, contingent credit, and catastrophe bonds. The Philippines, for instance, has issued ASEAN’s only sovereign CAT bond, while Myanmar, Cambodia, and Viet Nam are only beginning to develop financing frameworks.
The consequences are especially severe in under-protected countries, many of which are also among the most populous and economically vulnerable. In many of Asia’s developing countries, a large part of the rural workforce depends on agriculture, which absorbs 22% of disaster-related damage. These shocks have ripple effects on supply chains, employment, and food security. Small and medium-sized enterprises (SMEs) dominate supply chains and account for the majority of employment. For these businesses, shocks cause a sudden loss of assets and income, in tandem with reduced credit access and repayment stress.
On the macro level, these losses test public finances and the capacity of insurers and banks. Mass insurance claims strain solvency, and loan defaults weaken bank balance sheets. The damage often persists: GDP per capita, investment, and consumption remain depressed even three years after major disasters. Faster financial protection can help narrow these losses. Industry estimates suggest that a 1% increase in insurance penetration reduces recovery times by 12 months.
How can Asia and the Pacific’s risk financing divide be bridged?
It requires addressing both demand and supply constraints. On the demand side, low risk awareness and limited access to financial services inhibit adequate financial protection in many vulnerable economies. Affordability is also a binding constraint: in the Philippines, disaster coverage premiums can absorb up to four weeks of income for the poorest households.
On the supply side, insurers in countries such as Sri Lanka and Malaysia face a lack of reliable hazard data that leads to conservative underwriting, high deductibles, and outright coverage exclusions in the highest-risk areas. Reinsurance costs compound these pressures: Asia and the Pacific property catastrophe reinsurance pricing was 20-25% higher in 2023-24 than two decades earlier, squeezing local insurers who already cede a larger share of premiums to reinsurers than their counterparts in high-income markets. Climate change makes losses more frequent and correlated; the IAIS warns this will further challenge insurers’ ability to pool risk.
In the absence of adequate insurance, governments often act as the insurer of last resort. However, post-disaster financing is difficult particularly when tax revenues fall and borrowing costs rise. In Asia and the Pacific, 19 countries are already at high risk of debt distress.
Governments and regional partners can address these barriers through risk pooling. Regional risk pooling facilities such as Southeast Asia Disaster Risk Insurance Facility (SEADRIF) can help reduce reinsurance costs, improve access to affordable sovereign coverage, and develop real-time hazard data and risk analytics, bridging the information gap that keeps insurers out of vulnerable markets. SEADRIF’s RAISE programme – which builds resilience among smallholder farmers – shows how a regional approach can support rural communities that are most exposed to climate shocks.
Meanwhile, the UNEP Finance Initiative’s V20 Sustainable Insurance Facility (V20-SIF) has helped financial institutions in Cambodia, Nepal, Sri Lanka, Bangladesh, and the Philippines embed forward-looking climate risk modelling into lending and insurance decisions. This can improve the availability of financial products for SMEs, while building climate risk awareness and management capacity.
Ultimately, narrowing Asia’s risk financing divide needs closer regional cooperation. While financial protection through insurance and disaster risk financing cannot prevent natural hazards and disasters, it can determine whether they become temporary shocks or long-term setbacks to development.
