Regulators and policymakers must implement a strategic, all-of-society framework to address the root causes of a widening insurance protection gap that threatens global financial stability, according to the World Wide Fund for Nature (WWF).
A new WWF report warns that climate change and nature loss are rapidly undermining the foundations of the insurance system, leaving a growing portion of economic losses uninsured. In 2023 alone, the global cost of disasters reached approximately US$2.3 trillion, or 2% of global GDP, when indirect and ecosystem costs are included.
To preserve insurability, authorities must mandate holistic, forward-looking risk assessments that account for ecosystem tipping points and indirect economic damage. Regulators are urged to integrate nature-based solutions into adaptation planning, as healthy ecosystems serve as vital buffers against extreme weather. The report noted that the risk of a large-scale flooding event can increase by as much as 700% in areas of widespread deforestation, while protecting forests can be up to 25 times more cost-effective for risk mitigation than technical engineering measures.
Conservative estimates of the annual protection gap average US$64 billion in the US and €59 billion in the EU, forcing insurers to hike premiums or withdraw coverage entirely. In 2025, extreme summer events caused an estimated €43 billion in damages across the EU, and experts warn cumulative losses could reach €126 billion by 2029 if action is not taken. Yet, between 1980 and 2023, only 5% to 20% of economic losses from such events were covered by insurance.
Since 2018, over 1.9 million home insurance contracts in the US have been non-renewed, and the average cost of home insurance in the UK rose by 19% between 2023 and 2024. This reduced availability makes mortgages unattainable in high-risk regions and stifles business growth by making commercial credit harder to secure. WWF said the financial burden of uninsured risks would ultimately shift to the state, overstretching public budgets and potentially undermining sovereign creditworthiness.
The report said financial supervisors and central banks adopt a macroprudential approach to address the systemic risks posed by the insurance protection gaps to financial stability, such as spillovers between the insurance and banking sectors.
Recommended measures included using protection gap dashboards and system-wide stress tests that incorporate non-linear shocks and ecosystem tipping points. Supervisors are also urged to mandate science-based transition plans for underwriting portfolios and implement precautionary policy measures that prioritise immediate risk reduction over waiting for perfect data.
