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Climate Adaptation Gap and how Insurance can help in filling it

30th of October 2023

climate adaptation image © Jacob Lund Photography from The Noun Project

Climate adaptation means adjusting to both current and expected effects of climate change. By timely adapting to the consequences of climate change, such as extreme weather events, wildfires and floods, we can protect ourselves and our communities from escalation of damages and may also benefit from arising opportunities in human systems. We can also adjust our natural resources management in such a way that enables both manmade and natural ecosystems to maintain their resilience and adaptive capacity. Anticipatory and learning capabilities can be introduced to physical and social infrastructure.

It is essential for all actors to adapt to the changing climate and reduce the climate risks that affect their sector or sphere of life. At the moment, there is an adaptation gap, which needs to be addressed. The gap refers to the difference between the established need for adapting to the changing climate and the actual adaptation activities taking place.

For example, there is an adaptation gap for many types of crop farming across Europe. In Finland farmers are facing a new situation with long drought periods during the summer. At the moment only few Finnish farms irrigate their fields. They would need to adopt measures for coping with draught: irrigation or controlled drainage systems.

Another example of an adaptation gap can be seen in Portugal, where wildfires threaten the safety of residents. House owners could protect their property and safety by adopting, among others, vegetation control measures around their property.

Regardless of efficient risk mitigation and adaptation efforts, all climate risks cannot be prevented. Adaptation consists of actions that reduce impact risk and actions that promote risk sharing. Risk sharing reduces immediate financial impacts, while it should also reduce impact risk. As extreme reduction of risks is often extremely expensive, risk sharing mechanisms, such as insurance, help to strike a balance between affordable risk management and acceptable risk levels, i.e., the residual risks.

The role of insurance companies in filling the gap

Insurance companies can help in filling the adaptation gap by encouraging policy holders to better prepare and adapt to the changing climate and reduce risks. Insurance companies could also insert this incitation into their policies. The incitation can be partially achieved by providing information and guidelines, and partially by financial premiums for policy holders. Insurances also provide protection against residual risks. New, innovative insurance products are being developed to answer both needs: to encourage adaptation measures and bring security to the policy holder.

One innovative type of insurance products is parametric insurance. “The payout from parametric insurance is agreed upon in advance and triggered by a physical parameter reaching a pre-agreed target such as wind speed, occurrence of a drought, or a fire. When the parameter reaches the threshold, it triggers an immediate payout to the beneficiary, who can start restoration activities immediately.” (The World Bank Group 2020)

PIISA develops and tests new insurance concepts and products

The PIISA project develops new insurance concepts or products focusing on green roof insurances, soil stability risks for homeowner policy holders, insurance and climate services for agriculture, forest insurances for biotic and abiotic risks, and wildfire insurance enhancing adaptive action. The concepts or products are first piloted in specifically chosen locations with key stakeholders, and then their potential for wider uptake will be assessed.

The PIISA project aims to explore what kind of parametric insurances meet the needs of farmers and can help them to protect against weather and climate risks quite effectively. Advantages of parametric insurance include speed and certainty of indemnity payments and the ability of insured to plan ahead.

Green roofs provide many benefits like lowered flood risk, insulation and increased biodiversity in urban environment. However, green roofs are not yet widely implemented. To cope with the impacts of climate change it is in the interest of the insurers to develop insurance products, which stimulate the adoption of adaptation measures by policy holders. The effectiveness of new insurance solutions to stimulate the adoption of green roofs, e.g., insurance premium discounts, will be experimented. The project will examine the enablers and barriers for the uptake of green roofs, as well as potential for public-private partnerships. Moreover, business models for the European insurance industry will be developed for the upscaling of nature-based solutions for climate risk.


  • Kati Berninger (Tyrsky Consulting)
  • Heikki Tuomenvirta (Finnish Meteorological Institute - FMI)
  • Adriaan Perrels (Tyrsky Consulting)
  • Hilppa Gregow (Finnish Meteorological Institute - FMI)

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The World Bank Group. 2020. Mobilizing private finance for nature. A World Bank Group paper on private finance for biodiversity and ecosystem services. pp. 45-46