About the project

Adaptation in general refers to adjustments in ecological, social and economic systems and it consists of groups of actions including risk reduction and risk sharing. Climate adaptation is high on the European economic and political agenda, and their strategy on adaptation has four principal objectives: to make adaptation smarter, swifter and more systemic all while boosting international action on adaptation to climate change.

The PIISA project supports climate change adaption across all policy levels and supports the Mission on Adaption to Climate Change.

Adaptation and climate risk insurance at the core of the PIISA project

It is essential for all actors to adapt to the changing climate and reduce the climate risks that touch their sector or sphere of life. At the moment, there is an adaptation gap, meaning that the level of implemented adaptation is insufficient to meet the adaptation targets. This gap needs to be addressed. Insurance companies can help fill the gap by encouraging insurance users to better prepare and adapt to the changing climate and reduce risks. This can be partially filled by providing information and guidelines, and partially by financial premiums for insurance users.

Insurance is a contract that allows a policyholder to receive compensation from a provider, typically an insurance company, for a certain loss in exchange for the periodic payment of small amounts of money. As such, insurance instruments allow policyholders to share some or all of their risk with third parties, and insurance providers to pool risks from many different policyholders.

Climate insurance is meant to reimburse policyholders for losses generated by natural hazards such as cyclones, earthquakes, storms, floods and wildfires, which are being exacerbated by climate change. Most climate insurance products take the form of indemnity contracts, whereby a policyholder is compensated for material losses based on specific contractual conditions such as deductibles or cover limits. Before a claim can be paid, the insurance provider has to quantify the losses, which can considerably slow down the repayment process. Alternative types of products, such as parametric insurance or microinsurance, have emerged in recent years, but they are still not widely utilised.

New climate insurance products can encourage adaptation measures

In 2011-2020, the climate insurance protection gap worldwide amounted to 64% of total losses, with huge disparities across regions. In the EU, it is estimated that only 25% of losses are currently insured, with shares as low as 5% in certain countries. Differences in insurance penetration also exist across sectors and hazard types.

In spite of efficient risk mitigation and adaptation efforts, all climate risks cannot be prevented. Insurance provides protection against so-called residual risks. In those cases, insurance can help cover the damages. Well-designed climate insurance products can greatly reduce the adverse consequences of climate risks by rapidly providing available funds for recovery and reconstruction. This also limits the need for governmental relief, thus mitigating economic damage.

Existing insurance products may not, however, be sufficient for the changing conditions. New, innovative insurance products can both encourage adaptation measures and bring security to the policyholder. We develop new insurance concepts or products for three sectors: cities (considering nature-based solutions and well-being), agriculture and forestry sectors. The PIISA project will first pilot the concepts in the specifically chosen locations with key stakeholders, and then it will assess their potential for wider uptake.