Climate and insurance

Climate crisis: insurers are trialling new types of policies

Compensation is triggered when certain parameters are met. The Willis (Wtw) pilot project on the Caribbean coral reef

by Daniela Russo

1 October 2026

Aggiungi Il Sole 24 Ore
ai preferiti su Google

4' min read

Translated by AI

Versione italiana

Key points

Risk measurement
A model for ecosystems from the Caribbean
A replicable model

4' min read

Translated by AI

Versione italiana

Climate change does not merely alter temperatures, rainfall and the frequency of extreme events. It also changes the way in which regions, businesses and public authorities must assess their investments. An excessively hot summer can reduce the appeal of a tourist destination, drought can jeopardise agricultural production, and an extreme weather event can damage infrastructure. In all these cases , the problem is not just how much the damage costs, but the price paid for failing to foresee in good time how the risk would change . It is from this perspective that climate risk management is shifting from responding to events to the ability to anticipate them.

There are already numerous examples: temperatures reaching 44 degrees during the Ferragosto holiday can make beaches virtually unusable during the middle of the day and alter tourist flows; high-quality crops, such as Pachino tomatoes, can be put at risk by sudden and violent downpours. These are not necessarily isolated incidents, but signs of a wider transformation: “It will be a complete revolution in the value chain of local businesses and tourist flows,” comments Piergiorgio Vella, Director of Risk & Analytics at WTW. ‘Protecting the environment means safeguarding local communities, traditions and culture. Those who adapt first will survive; those who do not will face an unsustainable structural imbalance between costs and revenues.’

This issue also concerns investments that have already been made. Hotels, holiday resorts, infrastructure and commercial premises were designed on the basis of seasonality and climatic conditions that were considered to be relatively stable. If these conditions change, so too does the ability of those investments to generate the expected return.

Measuring risk

The first step is to assess the risk. “We can carry out actuarial studies to understand when and how a given area will be affected by climate change and extreme weather events, and combine these with engineering assessments,” explains Federico Veltri, Head of Risk Engineering, Risk & Analytics at WTW. The analysis may concern an ecosystem, a livestock farm, an agricultural plot, a piece of infrastructure or a public authority. The aim is to identify possible scenarios in advance and understand where it is most effective to take action.”

A model for ecosystems from the Caribbean

It is in this direction – centred on the importance of risk measurement – that the pilot project announced by Willis, a WTW company, and the Caribbean Biodiversity Fund to protect Caribbean coral reefs from hurricanes fits. The solution utilises a ‘dynamic Cat-in-Circle’ parametric cover, in which the payout does not depend on traditional damage assessment, but on the fulfilment of pre-defined objective parameters.

The principle is relatively simple: wind speed, temperature or other characteristics of an event can serve as the parameters that trigger cover. In traditional ‘Cat-in-Circle’ formulas, an area is defined and compensation is paid out when the event falls within that perimeter. The solution developed for coral reefs, however, introduces a dynamic element: the insured area varies according to the characteristics of the hurricane, in particular the radius of the maximum winds.

The project covers approximately 1,800 square kilometres of coral reef along the coasts of the Dominican Republic, Jamaica, Saint Lucia and Saint Vincent and the Grenadines. The aim is to rapidly make resources available for restoration work following an extreme event and to trial a funding model that could potentially be replicated for other ecosystems exposed to similar risks.

The case of corals is significant precisely because it shifts the focus from the individual insured asset to the ability to protect a system on which economic activities and local communities depend. It also demonstrates how prior knowledge of the risk can enable the necessary financial instruments to be put in place before the event occurs, so that a response can be mounted.

A replicable model

The same approach can also be applied to various contexts in Italy. ‘One need only think of the extreme weather events that have struck the Alps or those that may affect the Venice lagoon,’ observes Veltri. Also to be considered are the damages to businesses and local areas caused by prolonged drought, and crops damaged by heat, humidity and violent downpours. “The insurance policy, which acts as a vehicle for risk transfer, is a necessary tool; however, it must be embedded within a collective vision of the future that is well-structured and closely aligned with local communities,” emphasises Vella. First comes an awareness of what might happen, then an assessment of the measures needed to reduce exposure, and finally, the transfer to the market of the remaining share of risk. This approach calls particularly on public bodies to coordinate the interests of local areas where the climate transition may produce very different effects. The aim is to create the conditions enabling local areas, businesses and communities to continue functioning even as the conditions that have made them prosperous are changing.