Tokenized catastrophe bonds target the disaster-insurance gap

Natural disasters caused $220 billion in economic losses last year. Insurance covered only $107 billion of that bill, according to Swiss Re, leaving households, businesses and governments to absorb the rest.

Capital has continued to flow into catastrophe bonds. Catastrophe bonds, or cat bonds, let insurers pass the financial risk of a hurricane, wildfire or earthquake to capital-market investors. The market had $65.6 billion outstanding in June and new issuance reached $11.3 billion in the second quarter, the largest quarterly total on record, according to Artemis’ recent cat bond report.

Yet large parts of the loss from floods, typhoons and wildfires remain uninsured. In the Asia-Pacific, 91% of disaster losses in 2023 were uninsured, according to the Organization for Economic Co-operation and Development (OECD). It also said limited claims data and catastrophe models can make it harder for insurers and reinsurers to price coverage, particularly in high-risk areas.

Harneys, a Bermuda-based law firm specializing in global insurance, and tokenization platform dropRWA plan to issue tokenized cat bonds early next year, with each token representing legal ownership of the catastrophe bond.

The proposal builds on a conventional market that has historically been available largely to specialist funds and large institutions. Many catastrophe-bond offerings carry minimum investments of $250,000 or more. Harneys and droppRWA are considering a structure that could accommodate smaller beneficial interests, though it would still need to comply with securities, insurance and investor-protection rules.

Henry Tucker, chief executive of specialist insurance group Hearns, said a tokenized structure does not turn disaster coverage into a casual retail investment. The capital is fully committed to cover a defined insurance risk. “You’re not buying a right to get paid by somebody else who’s bet the other way at the casino,” he told CoinDesk in an interview.

Tucker pointed to flood cover and typhoon protection in Southeast Asia as risks that can be difficult to place with conventional reinsurers, particularly when claims data is limited or loss estimates are uncertain. A specialist underwriter could use a tokenized structure to raise capital for a single defined risk and set out the assumptions and the return offered to investors.

There is a real-world precedent for using catastrophe bonds to finance public disaster protection. The World Bank arranged $200 million of hurricane coverage for Jamaica in May, replacing an earlier transaction that paid out after Hurricane Melissa in 2025. Jamaica’s finance minister, Fayval Williams, called catastrophe bonds “an important piece ensuring capital market access” for the country’s resilience strategy.

Tokenization will not make a hurricane, flood or wildfire less expensive, Tucker said. Nor will it guarantee cheaper insurance for people in exposed areas, he added. The firms’ argument is that a token serving as the legal ownership record, combined with smaller ownership units, could bring more investors into a market built to absorb extreme losses.