ClimateWise, based at the University of Cambridge, warned that the gap of uninsured or under-insured assets had quadrupled over the past three decades.
The insurance sector’s role as society’s risk manager was under threat, warned one senior figure.
The network outlined its findings in two reports published on Wednesday.
‘What we have seen is that over the past 30 years, as societal exposure to climate change has increased, is that the traditional response of insurance – which is to reassess, re-underwrite, and reprice – is almost becoming the sector’s Achilles heel if you like because it is repricing itself out of risk but it is not addressing the root cause of the problem, which is that society is increasingly vulnerable to climate risks and it is in need of enhancing its resilience,’ explained ClimateWise programme manager Tom Herbstein.
He said the protection gap was the difference between total economic loss and the value of assets that were covered by insurance policies.
‘We have seen this gap open up from about US $23bn about 30 years ago to over US $100bn today,’ Dr Herbstein told BBC News.
He said that the burden of covering the cost of the protection gap fell on other parts of society, such as governments and asset owners. ‘In some cases, no-one covers it at all,’ he added.
The details of the widening protection gap in the global insurance market was published in ClimateWise’s annual review of its 29 members’ activities.
ClimateWise, a network of leading insurance companies, was established in 2008 by the Cambridge Institute for Sustainability.
The network’s chair, Maurice Tulloch, who is also chairman of global general insurance at Aviva, warned: ‘The insurance industry’s role as society’s risk manager is under threat.
‘Our sector will struggle to reduce this protection gap is our response is limited to avoiding, rather than managing, society’s exposure to climate risk.’
In another ClimateWise report, Investing in Resilience, the network highlighted ways that the industry could help support its clients to build a more robust infrastructure.
Dr Herbstein said the report published by ClimateWise’s Societal Resilience Programme, identified a number of approaches that would allow the global insurance industry to use its expertise and data in risk management to support its clients and the wider financial world to deliver climate resilience.
‘One is how insurers can start to invest in resilience internally, within its existing investment portfolio – such as increased investment in green bonds,” he said.
‘Interestingly, it also looks at what insurance can do, given all of its data and expertise, to help the wider financial system to better understand its risk exposure.
‘There potential for the insurance industry to support banks to better understand the risk exposure that their mortgage portfolio is facing from climate change, on the basis that if banks are more aware of the risks the properties they are lending to might face, such as the knock-on effect of a loss in property values.
‘Insurance companies have a vested interest in banks making a more strategic decisions because that would have a knock-on impact on the decisions that developers, local governments and property owner will make in terms of where they plan to locate new properties or protect existing ones.
‘Our argument is that the really powerful role the insurance sector can play is to support external stakeholders to start investing in climate resilience.
‘If the industry can start working outide its traditional risk-carrying role, it is going to have huge knock-on benefits. There is a real case for change,’ Dr Herbstein observed.