As Korea swelters, climate insurance spreads from farms to workers, shopkeepers and families
With heat waves driving lost wages and medical risks, Korea is expanding parametric climate insurance as officials and insurers confront widening gaps in disaster coverage.
A farmer sprays herbicide under the scorching sun in a green onion field in Goryeong County, North Gyeongsang, on Aug. 6.YONHAP
As temperatures approach 40 degrees Celsius (104 degrees Fahrenheit), climate insurance is emerging as a new way to protect people from the financial toll of extreme weather. Once focused largely on farmers and fishers, it is expanding to cover small business owners and daily construction workers.
Jeju Gov. Wi Seong-gon’s introduction of climate insurance for daily construction workers drew attention at a meeting on heat wave and drought measures chaired by President Lee Jae Myung on Thursday, the Jeju provincial government said Saturday.
President Lee reportedly expressed interest in climate insurance and said, “It is an example that other regions may want to consider.”
The insurance program currently operated by Jeju compensates daily workers for lost income when work at public construction sites is suspended due to extreme heat. If a heat wave warning is issued before 1 p.m. and all afternoon work is halted, workers receive about 17,000 won ($12) per hour for up to four hours, depending on the duration of the suspension.
The program uses a form of index-based insurance, also known as parametric insurance, under which payouts are triggered when predetermined indicators, such as a Korea Meteorological Administration warning and the suspension of work, are met rather than being based on the amount of actual losses.
Parametric insurance can provide coverage for indirect losses caused by events such as extreme heat even when there is no direct property loss, such as unpaid daily wages. Another advantage is that payouts can be made quickly because the claims assessment process is simplified.
President Lee Jae Myung delivers remarks at a meeting to review the response to heat waves and drought at the government complex in central Seoul on Aug. 6.JOINT PRESS CORPS
Gyeonggi also operates a climate insurance program. About 14.4 million residents, including registered foreign residents in the province, are automatically covered without having to sign up separately.
The program pays 150,000 won upon diagnosis of a heat- or cold-related illness and 100,000 won for an emergency room visit related to such an illness or a climate disaster. Benefits can also be claimed in addition to payouts from private insurance.
Private insurers are also rolling out related products as climate risks grow.
Tongyang Life Insurance has launched a “mini-insurance” product that provides 100,000 won in coverage for a heat- or cold-related illness diagnosis for one year. For a 40-year-old, the one-time premium is 130 won for men and 150 won for women.
KB Insurance’s KB Traditional Market Weather Damage Compensation Insurance (translated) is a group insurance policy taken out by traditional market merchants’ associations or regional governments. It pays benefits without requiring separate proof of actual sales losses when rainfall or maximum or minimum temperatures rise above or fall below predetermined thresholds.
A man sunbathes on dried grass in Green Park in London on Aug. 3.AP/YONHAP
Climate insurances worldwide
Extreme weather is also intensifying worldwide, and this has left significant climate-related losses uncovered by conventional insurance.
Insurance covered just 49 percent of global economic losses caused by catastrophic weather events in 2025, according to the Korea Insurance Research Institute. The protection gap could be even wider when indirect losses such as work stoppages and supply chain disruptions are taken into account.
Following such climate circumstances, government-backed disaster insurance and private parametric insurance products are spreading overseas.
In the United States, the federal government’s National Flood Insurance Program provides coverage for flood risks that are difficult for private insurers to bear. In Britain, Flood Re, jointly operated by the government and the insurance industry, reduces the cost of insurance for homes at high risk of flooding.
Swiss Re’s FLOW covers indirect losses in the logistics industry, including the cost of switching to road or rail transportation when falling water levels on the Rhine River disrupt shipping.
Farmworkers thin radish plants and pull weeds in a high-altitude radish field in Pyeongchang County, Gangwon, on July 14.YONHAP
Korea faces widening protection gap
In Korea, however, climate insurance remains heavily focused on government-led insurance programs such as crop disaster insurance, aquaculture disaster insurance and storm, flood and earthquake insurance. Critics say policy insurance alone has limits in sufficiently absorbing and spreading risks as climate disasters become more frequent and severe.
Economic losses from natural disasters in Korea surged about 28.6-fold over a decade, from 31.8 billion won in 2015 to 910.7 billion won in 2024, according to the Hana Institute of Finance. Recovery costs in 2024 even exceeded the amount of direct damage.
The National Assembly Research Service also found that property damage from natural disasters in 2024 was 439.6 billion won higher than the average for the previous 10 years.
Insurance enrollment rates also vary widely by product. The enrollment rate for crop disaster insurance stood at 54 percent in 2025, while that for aquaculture disaster insurance was 39.8 percent in 2023. By comparison, enrollment in storm, flood and earthquake insurance in 2024 stood at just 33.3 percent for homes, 19.6 percent for greenhouses and 6.5 percent for small businesses.
Yet the loss ratio for storm and flood insurance reached 236.4 percent in the first half of 2025. The combination of low enrollment and a high loss ratio could weaken the ability to spread risk while increasing the burden on the government and participating insurers.
A park golf course along the Yeong River in Mungyeong, North Gyeongsang, is flooded on July 9.YONHAP
The worsening impact of extreme weather is fueling calls for the government to overhaul its policy insurance programs and quickly introduce institutional measures to encourage greater participation by private insurers.
“The government could consider ways for the insurance industry to share its accumulated climate change risk management and analysis data so that the information can be reflected in establishing response systems,” Jang Young-jin, a legislative researcher at the National Assembly Research Service, said in a report.
“Measures could also be considered to provide tax benefits to companies that take a leading role in climate risk management and response, or to give them favorable treatment when calculating the Korean Insurance Capital Standard ratio.”
Lee Ki-hong, a research fellow at the Hana Institute of Finance, said the division of roles between the government and the private sector should be strengthened to expand climate insurance coverage and eliminate coverage gaps.
“The government should share large-scale risks through national reinsurance and institutional support, while the private sector needs to improve risk forecasting using AI, satellite information and weather data and expand parametric insurance products,” Lee Ki-hong said.
BY KIM WON [kim.jiye@joongang.co.kr]
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
