"The Weather Has Changed"... Climate Insurance Emerges as a Social Safety Net

As extreme weather events become more frequent, "climate insurance" is emerging as a key policy and financial tool to address these risks. With the scale of damages from future weather anomalies expected to grow, both public and private sectors are being called upon to share the burden of risk. The role of climate insurance as a social safety net, including the protection of vulnerable groups, is becoming increasingly emphasized.

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According to the Korea Meteorological Administration on April 21, a cold wave advisory was issued for parts of Gangwon, Chungnam, and Jeonbuk the previous day. This was the latest issuance of a cold wave advisory since records began in July 2005. On April 19, just a day earlier, the daytime high in Seoul reached 29.4 degrees Celsius, more than 10 degrees above the seasonal average and setting a new record for the highest mid-April temperature since meteorological observations began.

Such abnormal temperatures are not isolated incidents but are occurring as part of a structural trend in climate change. According to the "2025 Abnormal Climate Report" published last month by the Korea Meteorological Administration and the National Climate Crisis Response Committee, last summer’s nationwide average temperature was the highest recorded since 1973. Precipitation patterns have become increasingly extreme: in Gyeonggi and Chungnam, torrential rainfall exceeding 100mm per hour was observed, while the Yeongdong region of Gangwon experienced its worst drought in a century, highlighting deepening regional climate disparities.

These climate changes are being reflected in policy insurance. A prime example is Gyeonggi Province, which became the first in the nation to introduce climate insurance covering health damages caused by heat waves and other climate-related issues. Notably, this year, the province increased the payout for heat- and cold-related illnesses by 50%, and introduced new benefits such as death compensation and emergency room visit coverage. The coverage, which previously focused on certain vulnerable groups, has also been expanded to include pregnant women, thereby broadening the scope of climate risk protection.

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The climate crisis is also exacerbating social inequality between groups. Heat waves and cold spells have a greater impact on the elderly and those with underlying health conditions, while flooding damage tends to be concentrated among households with below-median incomes. To address this concentration of risk among vulnerable populations, KB Insurance is operating the "KB Traditional Market Weather Damage Compensation Insurance," an index-based insurance product that compensates traditional market merchants for business interruption losses caused by weather events. Selected as an exemplary case of cooperative financial innovation by the Financial Supervisory Service earlier this year, this product pays out insurance benefits without separate proof of loss when weather indices such as precipitation or temperature exceed certain thresholds, focusing on reducing business risks for small merchants vulnerable to climate change.

Within the insurance industry, there is growing recognition that, alongside unusual weather in daily life, the scale of damages from major disasters like wildfires and floods is increasing, further highlighting the importance of climate insurance. Han Jinhyeon, a research fellow at the Korea Insurance Research Institute, commented, "As the climate crisis intensifies, damages from extreme weather events are expected to rise. There is a need to strengthen response capabilities and establish an institutional foundation for sharing compensation and recovery burdens between the private and public sectors." He added, "The introduction of insurance-linked securities (ILS) tied to disaster risks, such as catastrophe bonds, and the improvement of systems related to special purpose vehicles (SPV) that issue them, should also be considered." Furthermore, he emphasized, "Climate risks can have a greater impact on vulnerable populations such as the elderly, those with chronic illnesses, and low-income groups. It is necessary to expand coverage to risks not addressed by existing insurance products through innovation, in order to reduce protection gaps."

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