The tourism sector is a vital contributor to Sri Lanka’s economic growth, employment, and cultural exchange. Yet, it remains highly vulnerable to climate change impacts, including extreme weather events as well as slow onset events such as coastal erosion, and shifting rainfall patterns. These risks disrupt operations and create financial uncertainty for enterprises in the tourism sector, disproportionately affecting small and medium enterprises (SMEs) due to their limited fall-back capacity. As climate risks intensify, insurance has emerged as a potential risk transfer tool to enhance sectoral resilience. However, accessibility, affordability, and effectiveness remain key concerns for businesses of varying scales.
As a small and relatively underdeveloped insurance market, Sri Lanka has witnessed slow innovation and limited uptake of financial instruments designed for disaster risk management. Despite this, climate insurance presents an opportunity to strengthen the tourism sector by functioning as a crucial risk transfer mechanism. It would enable businesses to recover from climatic shocks, sustain operations, and contribute to long-term sectoral stability. Climate insurance also plays a role in incremental adaptation, allowing businesses to gradually integrate risk management into their operations without abrupt financial burdens.
SLYCAN Trust recently convened a Climate 2.0 dialogue in partnership with the Sustainable Development Council to explore these challenges and identify opportunities for innovation in climate insurance for the country’s tourism industry. This discussion brought together stakeholders from across the sector to assess existing products and propose new approaches tailored to industry needs, ensuring gender-responsive mechanisms that address the vulnerabilities of marginalised groups within the tourism workforce.
Climate risk insurance comprises financial risk transfer instruments designed to provide protection against extreme weather events, which are increasing in frequency and intensity due to climate change. This mechanism offers protection to various stakeholders, including government and non-government institutions, businesses, community groups, and households, ensuring effective and rapid post-disaster payments.
In the tourism sector, insurance could serve as a mechanism to cover losses from climate change-induced business disruptions, as well as damage to infrastructure and ecosystems that attract tourists. Two key types of climate risk insurance available for consideration are:
Currently, most insurance products available for the tourism sector in Sri Lanka are indemnity-based and primarily cover general business risks, with limited provisions for climate-induced disruptions through the value chain. While some products, such as hotelier’s insurance and property coverage, include protections against natural disasters, they often do not address gradual climate risks like rising sea levels or biodiversity loss. Additionally, insurance penetration remains low due to high costs, perceived procedural complexities, and limited awareness among tourism operators.
The development and adoption of climate insurance in the tourism sector face multiple challenges.
Provider challenges: A key issue experienced by insurance providers is the limited availability and accessibility of real-time climate and disaster related data, which is essential for designing effective insurance products, particularly parametric and index-based policies. While government and various non-government institutions collect relevant data, fragmented access hinders efficient risk assessment and the ability to develop tailored products.
End user barriers: From the end user’s perspective, high insurance costs present a major barrier, especially for SMEs including eco-tourism operators. Limited financial literacy often results in small businesses overlooking insurance and fall-back capacity as a critical part of operational planning. Furthermore, low long-term participation in insurance schemes reduces their sustainability, as businesses may discontinue coverage if immediate risks do not materialise.
Market limitation: The limited scale of Sri Lanka’s insurance market also restricts innovation in climate and disaster recovery-specific products, as insurance providers may lack financial incentives to develop specialised policies. Currently available solutions primarily address general business risks rather than gradual climate-related threats such as coastal erosion, changing weather patterns, and ecosystem degradation. Broader risk-pooling arrangements could help distribute costs more effectively for the insurance market thereby encouraging increased participation.
To enhance resilience in Sri Lanka’s tourism sector, it is essential to adopt a holistic risk transfer mechanism that addresses the specific challenges faced by highly vulnerable groups. A comprehensive approach to insurance as a risk transfer tool requires strong collaboration among government bodies, implementing agencies, and the private sector. Strengthening resilience through robust social protection measures and institutional strategies can help balance risk portfolios and drive climate-responsive product development. However, the private sector’s willingness to prioritise climate risk-specific products will depend on market dynamics and risk appetite.
Raising awareness across the tourism value chain about the role of insurance in managing climate risks must be a coordinated effort. With a strong enabling environment—including capacity development, policy incentives, and multi-stakeholder engagement—the adoption of climate insurance can be expanded, ultimately fostering long-term climate resilience.
This blog post is based on reflections from the Climate 2.0 dialogue titled "Exploring Access to Climate Insurance in Sri Lanka’s Tourism Sector," held in February 2025. You can find the full discussion brief from the dialogue here.
Shifaz Ameer is a finance and administration professional who serves as a Programme and Communications Coordinator for SLYCAN Trust. Shifaz possesses a CIMA part-qualification and is currently pursuing an MBA at the University of Sunderland. Before taking on this role, Shifaz held a managerial position at a Cambridge English Assessments accredited exam preparation centre for over 5 years.
The tourism sector is a vital contributor to Sri Lanka’s economic growth, employment, and cultural exchange. Yet, it remains highly vulnerable to climate change impacts, including extreme weather events as well as slow onset events such as coastal erosion, and shifting rainfall patterns. These risks disrupt operations and create financial uncertainty for enterprises in the tourism sector, disproportionately affecting small and medium enterprises (SMEs) due to their limited fall-back capacity. As climate risks intensify, insurance has emerged as a potential risk transfer tool to enhance sectoral resilience. However, accessibility, affordability, and effectiveness remain key concerns for businesses of varying scales.
As a small and relatively underdeveloped insurance market, Sri Lanka has witnessed slow innovation and limited uptake of financial instruments designed for disaster risk management. Despite this, climate insurance presents an opportunity to strengthen the tourism sector by functioning as a crucial risk transfer mechanism. It would enable businesses to recover from climatic shocks, sustain operations, and contribute to long-term sectoral stability. Climate insurance also plays a role in incremental adaptation, allowing businesses to gradually integrate risk management into their operations without abrupt financial burdens.
SLYCAN Trust recently convened a Climate 2.0 dialogue in partnership with the Sustainable Development Council to explore these challenges and identify opportunities for innovation in climate insurance for the country’s tourism industry. This discussion brought together stakeholders from across the sector to assess existing products and propose new approaches tailored to industry needs, ensuring gender-responsive mechanisms that address the vulnerabilities of marginalised groups within the tourism workforce.
Climate risk insurance comprises financial risk transfer instruments designed to provide protection against extreme weather events, which are increasing in frequency and intensity due to climate change. This mechanism offers protection to various stakeholders, including government and non-government institutions, businesses, community groups, and households, ensuring effective and rapid post-disaster payments.
In the tourism sector, insurance could serve as a mechanism to cover losses from climate change-induced business disruptions, as well as damage to infrastructure and ecosystems that attract tourists. Two key types of climate risk insurance available for consideration are:
Currently, most insurance products available for the tourism sector in Sri Lanka are indemnity-based and primarily cover general business risks, with limited provisions for climate-induced disruptions through the value chain. While some products, such as hotelier’s insurance and property coverage, include protections against natural disasters, they often do not address gradual climate risks like rising sea levels or biodiversity loss. Additionally, insurance penetration remains low due to high costs, perceived procedural complexities, and limited awareness among tourism operators.
The development and adoption of climate insurance in the tourism sector face multiple challenges.
Provider challenges: A key issue experienced by insurance providers is the limited availability and accessibility of real-time climate and disaster related data, which is essential for designing effective insurance products, particularly parametric and index-based policies. While government and various non-government institutions collect relevant data, fragmented access hinders efficient risk assessment and the ability to develop tailored products.
End user barriers: From the end user’s perspective, high insurance costs present a major barrier, especially for SMEs including eco-tourism operators. Limited financial literacy often results in small businesses overlooking insurance and fall-back capacity as a critical part of operational planning. Furthermore, low long-term participation in insurance schemes reduces their sustainability, as businesses may discontinue coverage if immediate risks do not materialise.
Market limitation: The limited scale of Sri Lanka’s insurance market also restricts innovation in climate and disaster recovery-specific products, as insurance providers may lack financial incentives to develop specialised policies. Currently available solutions primarily address general business risks rather than gradual climate-related threats such as coastal erosion, changing weather patterns, and ecosystem degradation. Broader risk-pooling arrangements could help distribute costs more effectively for the insurance market thereby encouraging increased participation.
To enhance resilience in Sri Lanka’s tourism sector, it is essential to adopt a holistic risk transfer mechanism that addresses the specific challenges faced by highly vulnerable groups. A comprehensive approach to insurance as a risk transfer tool requires strong collaboration among government bodies, implementing agencies, and the private sector. Strengthening resilience through robust social protection measures and institutional strategies can help balance risk portfolios and drive climate-responsive product development. However, the private sector’s willingness to prioritise climate risk-specific products will depend on market dynamics and risk appetite.
Raising awareness across the tourism value chain about the role of insurance in managing climate risks must be a coordinated effort. With a strong enabling environment—including capacity development, policy incentives, and multi-stakeholder engagement—the adoption of climate insurance can be expanded, ultimately fostering long-term climate resilience.
This blog post is based on reflections from the Climate 2.0 dialogue titled "Exploring Access to Climate Insurance in Sri Lanka’s Tourism Sector," held in February 2025. You can find the full discussion brief from the dialogue here.
