South Korea will introduce its first index-based weather insurance product next month, marking a shift in how traditional market vendors can manage financial risks from extreme weather.
According to Chosun’s exclusive report, the new offering from KB Sonbo Insurance Co., Ltd. is designed to provide automatic payouts to merchants whose business income is impacted by adverse weather, such as heatwaves, heavy rainfall, or cold spells.
Unlike conventional policies that require proof of physical damage, this insurance pays out when specific weather thresholds are met.
For instance, if daily rainfall exceeds 80mm, policyholders can receive up to 50,000 Korean won per day. Lower rainfall levels trigger smaller payouts, ranging from 20,000 to 30,000 won.
Cold weather triggers are set at various temperature thresholds, with payouts increasing as temperatures drop.
In Jeju Island, the minimum temperature for a payout is set at -5°C, reflecting the region’s milder climate.
Heatwaves are also covered, with a payout of 15,000 won per day if temperatures surpass 33°C.
Policyholders have the option to select the thresholds that best fit their risk profile, with premiums adjusted accordingly.
The claims process is streamlined, reducing the typical waiting period for payouts from two weeks to as little as three to five days, since no damage assessment is required.
KB Sonbo Insurance is rolling out the product through traditional market merchant associations.
For example, if an association of 500 stores selects coverage for rainfall above 40mm, maximum temperatures above 35°C, and minimum temperatures below -11°C, the estimated annual premium per store is around 640,000 won.
Based on historical weather data, payouts under these conditions have ranged from 515,000 won to 770,000 won in recent years.
The Financial Services Commission (FSC) and the insurance sector in South Korea have also established a 30 billion won mutual growth fund to support free insurance for low-income individuals and small business owners. Climate insurance for lost income due to severe weather is among the initiatives being considered.
The launch of this new insurance product comes at a time when global catastrophe losses are on the rise.
Verisk’s latest Global Modelled Catastrophe Losses Report estimates that the average annual insured property loss from natural disasters has reached US$152 billion. This figure reflects a US$32 billion increase over the previous year, influenced by factors such as inflation, urban development, more frequent extreme events, and climate change.
Over the past five years, average annual insured losses have climbed to US$132 billion, up from US$104 billion in the preceding five-year period.
Property exposure in countries modelled by Verisk grew at a 7% annual rate from 2020 to 2024, while climate effects contributed about 1% to the year-on-year increase in losses.
The protection gap remains notable, particularly in Asia, where insurance covers only 12% of total economic losses from natural catastrophes, compared to 48% in North America.
A separate analysis from Willis projects that global insured losses from natural disasters will again surpass US$100 billion in 2025, marking the seventh consecutive year at this level.
Major events so far include the costliest wildfire on record for insurers in Los Angeles, with estimated losses over US$40 billion, as well as significant wildfire activity in Japan and South Korea, a record tornado season in the US, and Australia’s first cyclone landfall near Brisbane in half a century.
