Insights

South Korea’s Insurance Sector Response to the Climate Crisis:
Global Trends and Policy Alternatives

ㅣ Karl Yang, Founder & Executive Director of KoSIF ㅣ

The climate crisis is exerting a profound impact on the global economic and social systems, placing the insurance industry at the absolute frontlines. Climate disasters such as floods, heatwaves, wildfires, and typhoons are already generating hundreds of billions of dollars in economic losses worldwide each year. Consequently, the insurance industry is emerging as a critical financial intermediary that facilitates climate crisis responses and transitions, rather than acting as a mere compensator of risks. However, the response level of South Korea’s insurance sector remains highly inadequate compared to leading global insurers, leaving it falling behind changes in the international financial regulatory environment. Capitalizing on the publication of the "2024 Korea Scorecard," this article aims to compare and analyze the current status of the global insurance industry's climate crisis response against the gaps present in the Korean insurance sector, and to propose policy alternatives.

    Current Status of Global Insurance Industry’s Climate Crisis Response

Major insurers in Europe and North America are already integrating climate crisis responses into the core of their corporate management strategies. As of 2024, approximately 41% of major global insurers have adopted underwriting and investment restriction policies for coal, setting clear targets to fully complete their divestment from coal-related projects by 2030 in OECD countries and by 2040 globally.

Furthermore, remarkable international progress is being made in climate risk disclosure. Through the Corporate Sustainability Reporting Directive (CSRD), the European Union has mandated climate-related risk and opportunity disclosures for approximately 50,000 companies. Major insurers are complying with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the IFRS S2 standards of the International Sustainability Standards Board (ISSB). Concurrently, a multitude of global insurers are releasing climate-adaptive insurance products in sectors such as agriculture, renewable energy, and infrastructure, successfully balancing risk management with new revenue generation.

    Status and Limitations of South Korea’s Insurance Sector

Conversely, according to the analysis of the 2024 Korea Scorecard, the adoption of coal-exit policies by domestic insurers remains highly limited, and a majority of insurers remain directly or indirectly exposed to coal and gas projects. Climate risk disclosure also lingers at a superficial level, and not a single domestic insurance company currently discloses the greenhouse gas emissions of its investment portfolio (financed emissions).

Limitations are equally glaring in product development. While countries like Germany and Japan have already rolled out specialized insurance products geared toward agriculture, disaster response, and the energy transition, the South Korean insurance sector has failed to break away from an operating structure centered primarily on short-term protection-type products. These structural bottlenecks heighten the probability that South Korea’s insurance industry will be labeled an "underdeveloped nation in climate risk management" by the international capital market.

The inadequate response of the Korean insurance sector to the climate crisis can be attributed to three main factors: 

Inadequate Regulation and Supervision: Financial authorities have failed to implement mandatory disclosures that align with international benchmarks such as TCFD and ISSB, leaving ESG disclosures at the level of mere recommendations.

• Risk-Averse Nature of the Industry: As an operational structure focused heavily on short-term profitability persists, investments and product innovations necessary for long-term climate risk management continue to be delayed.
• Lack of Participation in International Networks: As of 2024, the number of signatories to the Principles for Responsible Investment (PRI) reached 5,300, representing approximately $130 trillion in assets under management (AUM). However, the enrollment rate among Korean insurers is negligible. This causes them to miss out on global learning and collaboration opportunities, while casting a negative shadow over their international credibility.

    Strategic Response Tasks Moving Forward

To strengthen the international standing of the South Korean insurance sector, the following policy alternatives are proposed:

First and foremost, making climate risk disclosure mandatory is a matter of utmost urgency. The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) must establish a phased roadmap to convert disclosures aligned with ISSB and TCFD standards into legally binding requirements. This is an indispensable prerequisite for securing access to international capital markets.

Second, institutional frameworks must be enacted to restrict domestic insurers' investments in coal and fossil fuels. This must be aligned with the global standard of ending coal investments by 2030 in the OECD and by 2040 globally.

Third, policies supporting the development of climate-adaptive insurance products must follow suit. These should target sectors directly involved in countering the climate crisis, such as agriculture, renewable energy, offshore wind power, and hydrogen infrastructure. To achieve this, supportive mechanisms including tax incentives, R&D grants, and streamlined permitting processes must be implemented in tandem.

Finally, participation in international networks must be actively expanded. The government should encourage insurers to join the PRI and the Net-Zero Insurance Alliance (NZIA) / Forum for Insurance Transition to Net Zero (FIT), while reinforcing learning and policy cooperation through ties with international initiatives to elevate the global credibility of the Korean insurance sector.

The insurance industry can serve as a core pillar of climate crisis response given its intrinsic function of diversifying and managing risks. However, South Korea’s insurance sector currently stands estranged from global trends, lacking the capacity to respond to the climate crisis due to regulatory deficiencies and internal structural bottlenecks. This state of affairs undermines the international credibility of the Korean insurance industry and could, over the long run, pose a threat to the stability of the domestic economy.

Therefore, the South Korean insurance sector must pivot from being a "passive beneficiary" to an "active transition accelerator" across four key pillars: tightening regulations, restricting fossil-fuel investments, innovating products, and expanding global participation. This path will secure the sustainability of the Korean economy while ensuring that the insurance industry fulfills the social responsibilities it owes in the era of the climate crisis.

Read 2024 Korea Scorecard