Catastrophe Bonds Target the Disaster Insurance Gap

The planned Bermuda issuance places legal ownership within the chain and seeks capital for natural disaster risks whose insurance is expensive.

Natural disasters caused 220 billion dollars in economic losses last year. According to Swiss Re, insurance covers only $107 billion of the bill, leaving the rest to households, businesses and governments.

Capital continues to flow into distressed bonds. Catastrophe bonds, or cat bonds, allow insurers to transfer the financial risk of a hurricane, fire or earthquake to capital market investors. The market had $65.6 billion in June, and new issuance reached $11.3 billion in the second quarter, the largest quarterly total on record, according to a recent Artemis Cat bond report.

However, a large portion of damages caused by floods, hurricanes and forest fires are not insured. According to a report by the Organization for Economic Co-operation and Development (OECD) in Asia and the Pacific, 91 percent of losses from natural disasters in 2023 were uninsured. It also said limited loss data and catastrophe models can make pricing coverage more difficult for insurers and reinsurers, especially 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 a catastrophe bond.

This offering is based on the conventional market, which historically has been mainly held by specialist funds and large institutions. Many catastrophe bonds have minimum investments of $250,000 or more. Harneys and droppRWA have considered a structure that can accommodate less beneficial interests, although it must still comply with securities, insurance and investor protection laws.

Henry Tucker, chief executive of Hearns Specialty Insurance Group, said the tokenized structure does not make catastrophe coverage an occasional retail investment. Capital is fully committed to cover a defined insurance risk. "You don't buy the right to collect money from someone else who bets against you in a casino," he told CoinDesk in an interview.

Tucker cited flood coverage and hurricane protection in Southeast Asia as risks that may be difficult for conventional reinsurers to cover, especially when loss data is limited or loss estimates are uncertain. A specialist underwriter can use a tokenized structure to raise capital for a defined risk and determine the assumptions and returns offered to investors.

There is real-world precedent for using catastrophic bonds to finance public disaster protection. In May, the World Bank arranged $200 million in hurricane coverage for Jamaica, replacing a previous transaction that was paid after Hurricane Melissa in 2025. Jamaica's finance minister, Fayval Williams, called the disaster bonds "an important part of ensuring access to capital markets" for the country's resilience strategy.

Tokenization doesn't make hurricanes, floods or fires any cheaper, Tucker said. He added that it does not guarantee cheaper insurance for people in high-risk areas. The companies' argument is that a token as a legal record of ownership, along with smaller units of ownership, can bring more investors into a market built to absorb extreme losses.

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