Page 5 - Azerbaijan State University of Economics

Haris Ur Rehman Horani, Muhammad Amin, Farhan Ahmed: Climate Risk Insurance: Bibliometric Review on
Present, Past and Future

INTRODUCTION
Climate risk insurance is emerging as a crucial tool in addressing the climate change
challenges like natural disasters, food insecurity and sea level rise. By providing
financial protection against climate-related losses, such insurance schemes can help
vulnerable communities and economies recover more quickly from disasters.
Additionally, they increase benefits over investments in building measures, such as
early warning systems and infrastructure improvements (Rogers & Tsirkunov, 2010).
Furthermore, climate risk insurance can play a pivotal role in promoting sustainable
development by encouraging adaptation strategies and reducing the long-term costs
associated with climate change impacts. Climate change hinders socioeconomic
progress by weakening sustainability and resilience, reinforcing poverty cycles, and
causing loss of life and property. In 2022, natural disasters caused about 270 billion
USD in damages, with almost 55% of the amount was not under insurance (Munich
Re, 2022). Like Germany is expected to face insured losses of 4-5 billion EUR due to
the severe floods in July 2021 (GDV, 2021). Climate-related hazards could put around
4% of the global economy at risk in 2022 (Mundey, Amiot, & Sifon-Arevalo, 2022).
Climate risk insurance has emerged as a critical tool for managing the impacts of
climate change by providing financial protection against the losses associated with
climate-related events. Climate risk insurance can take various forms, including
traditional insurance products, such as property and casualty insurance, as well as
innovative financial instruments, such as parametric insurance and catastrophe bonds
(Boreux, 2013). These financial instruments can provide protection against a wide
range of climate-related risks, including extreme weather events, natural disasters, and
sea-level rise.
Climate risk insurance is especially important for vulnerable populations, such as low-
income communities, smallholder farmers, and small and medium-sized enterprises.
These groups are often the most affected by climate-related events. They usually lack
access to traditional insurance products and are more vulnerable to the impacts of
climate change due to limited financial resources, inadequate infrastructure, and
reliance on climate-sensitive livelihoods.
This paper aims to examine the interrelation between climate risk and insurance,
addressing three key inquiries. Firstly, it inspects the emerging trends in research
pertaining to risk management and climate insurance over the preceding decade
(RQ1). Secondly, it assesses the evolution of methodologies employed in risk
assessment within the context of climate insurance (RQ2). Lastly, the paper explains
the principal challenges and opportunities inherent in utilizing climate insurance as a
mechanism for mitigating risks associated with climate change (RQ3).

5