Natural disasters caused $220 billion in economic losses last year, but insurance covered only $107 billion, leaving households, businesses and governments to absorb the rest, according to Swiss Re.
The catastrophe-bond market, which allows insurers to transfer disaster financial risks to capital-market investors, reached $65.6 billion outstanding in June. New issuance hit $11.3 billion in the second quarter, the largest quarterly total on record, according to recent reports.
Yet significant coverage gaps remain. In the Asia-Pacific region, 91% of disaster losses in 2023 were uninsured, according to the Organization for Economic Co-operation and Development. Limited claims data and catastrophe models can make it harder for insurers to price coverage in high-risk areas.
Harneys, a Bermuda-based law firm specializing in global insurance, and tokenization platform dropRWA plan to issue tokenized catastrophe bonds in early 2027. Each token would represent legal ownership of the catastrophe bond.
The proposal targets a barrier in the conventional market: many catastrophe-bond offerings require minimum investments of $250,000 or more, historically limiting access to specialist funds and large institutions. The tokenized structure could accommodate smaller beneficial interests while remaining subject to securities, insurance and investor-protection rules.
Henry Tucker, chief executive of specialist insurance group Hearns, said tokenization could help finance specific risks that are difficult to place with conventional reinsurers. He cited flood cover and typhoon protection in Southeast Asia as examples where limited claims data or uncertain loss estimates complicate traditional placement.
Tucker noted that tokenization will not reduce the cost of natural disasters or guarantee cheaper insurance for people in exposed areas. The argument, he said, is that tokens serving as legal ownership records, combined with smaller ownership units, could bring more investors into a market built to absorb extreme losses.
The World Bank previously arranged $200 million of hurricane coverage for Jamaica in May, demonstrating real-world use of catastrophe bonds for public disaster protection.
