other asset managers. In line with institutional investors, insurers may also be disproportionally affected due to the long‐term nature of their equity and infrastructure investments. As underwriters, pricing risks may arise from changing risk profiles to insured assets. For example, climate‐change trends may affect the size of segments in the insurance market (e.g., some risks may become hard to insure) but may also offer opportunities for innovative insurance offerings. Moreover, climate change increases the complexity of catastrophe models, making it harder to make valid predictions about expected and unexpected losses and increasing the uncertainty in estimates (e.g., due to hard to model climate‐change trends and knowledge gaps). Finally, insurance companies may be affected by increased liability risks due to climate‐ change, among others as part of negligence policies. (IAIS/SIF, 2018; Bank of England, 2015).

Insured losses from climate‐related natural disasters reached a record high in 2017, while industry estimates (Lloyds of London 2017) suggest weather‐related losses have increased to US$200 billion in the past decade. Lloyd’s attributes these losses to both climate change and development patterns which are leading to a rise in concentration of people and assets in high‐risk regions such as coastal and urban areas. So, while these losses cannot necessarily be fully attributed to climate change, changing weather patterns and sea‐level rise, as well as climate change‐related disasters, can give rise to higher damages and losses due to changing risk profiles of insured assets and property, as well as changing mortality and demographics. If insured losses resulting from climate‐related events are sufficiently large and concentrated, they could lead to distress or failure of insurance companies.

_What is the role of insurers to address climate change?_ The insurance sector has a valuable role to play as risk manager, underwriter and investor to build economic resilience and entrepreneurial pathways for addressing climate targets. The industry is contributing significantly to building financial resilience to extreme events and other physical risks by providing risk information and risk pricing expertise, offering innovative risk transfer products and services, and improving the efficiency of distribution channels and payout mechanisms. It is also supporting the transition to a low‐carbon economy through its underwriting business, investment strategies, and active reduction of its carbon footprint (Geneva Association, 2019).

There is some evidence that countries utilizing market‐based insurance coverage may recover faster from the financial impacts of extreme weather events, although there is no consensus in the literature. The widening protection gap indicates that the benefits of risk transfer measures are yet to be fully utilized and that countries with lower levels of insurance penetration experience larger declines in economic output and more considerable fiscal losses from disasters. Findings by Von Peter et al. (2012) suggest that the growth response to insured losses is close to zero, while that to uninsured losses was clearly negative (2.3 percent or more), suggesting that it is the uninsured part of catastrophe‐related losses that drives the macroeconomic cost. Melecky and Raddatz (2011) also find that countries with higher insurance penetration are able to contain the real impacts of natural disaster without the need for significant fiscal expansion. Hsiang and Jian (2014) on the other hand, find that tropical cyclones result in a long‐run decline in national incomes relative to their pre‐disaster trend and post disaster interventions such as borrowing, transfers, and insurance have only a limited long‐run impact.

The insurance sector is an important source of finance and innovation in building resilience. Regional catastrophe risk insurance pools such as in the Caribbean and in the Pacific transfer their excess catastrophe risk to the international reinsurance markets cost‐effectively. The Philippines, with the help of the World Bank, secured $590 million in reinsurance markets for its catastrophe risk insurance program 21