However, investments in ex ante urban climate adaptation may prove less attractive to these financiers than other opportunities because of their long maturities and high risk  . Many generate economic returns primarily through avoided losses from climate impacts, which are difficult to measure and are, in any case, more attractive to funders than financiers . Ex post, insurance already plays a critical role in protecting urban households, firms and other stakeholders from the full economic costs of high-severity, low-frequency events by sharing risk over time and space. Insurance can also be designed to incentivise risk-reducing behaviours and investments . Some researchers suggest that, in urban environments, insurance practices are helping to establish adaptation and risk as a new area of public health and public protection. For example, local governments are using new risk transfer instruments, such as re-insurance and catastrophe bonds, to fund investments in resilience projects and disaster recovery . However, the commercial feasibility of private sector insurance depends on more robust estimates of current and future risks, and premiums commensurate with the ability and willingness of consumers to pay. Therefore, ex ante investments must complement insurance schemes to improve climate modelling and reduce climate risk . The private sector also faces practical barriers to invest in adaptation.
IPCC
Climate Change 2022: Impacts, Adaptation and Vulnerability
IPCC Report