This article is part of our series, The Hidden Cost, in which Vogue Business breaks down everything you need to know about climate finance as it relates to fashion’s supply chains. No jargon, just insights. Read more here.
Extreme weather is getting more frequent and intense, but hiding behind these headline-grabbing events is a looming insurance crisis that could rock fashion supply chains from top to bottom. And experts are warning brands to pay attention.
As the California wildfires raged earlier this year, it soon emerged that a lot of insurance cover had been covertly limited or removed, and insurance companies were buckling under the pressure of payouts. A few months later, a top insurer who sits on the board of Allianz SE (one of the world’s largest insurance companies) warned that extreme weather could render insurance obsolete and topple the entire capitalist system in the process. In a follow-up report in July, Allianz’s Günther Thallinger and Christopher Townsend wrote that changes to popular insurance models would be “critical for economic continuity and social stability”.
As farmers, factories and garment workers grapple with the realities of a warming world, experts say it’s time for fashion brands to step up on adaptation and resilience.
In fashion supply chains, the physical risks associated with the climate crisis are plain to see. Farmers growing raw materials are struggling with drought and flooding, while those rearing livestock have new diseases to contend with. Garment workers are battling extreme heat, which could cost fashion companies hundreds of billions of dollars by 2030. Factories and physical retail networks are reporting damage to buildings and disruption to workflow. While businesses might be able to absorb some of these shocks, mitigate the risks or take out more insurance to minimise them, few workers have access to this level of financial protection.
That is where novel insurance models come into play.
“The world is becoming a riskier, more volatile place, but insurance allows people to plan ahead,” says Charlie Langdale, founder and CEO of Humanity Insured, a non-profit established in September 2024 to protect vulnerable communities from climate-related losses. Alongside a growing wave of insurance-adjacent philanthropies and charities worldwide, Humanity Insured provides grant funding that pays for “parametric” insurance, which pays out as soon as pre-agreed thresholds are met, rather than waiting for a catastrophic event to happen. This way, garment workers can access funds as soon as their home or factory hits a certain temperature, and farmers can receive a payout if their crop fails due to a reduction in rainfall. The charity says it has helped to protect more than 1.7 million people from climate-related losses since its foundation, by turning £2 million in donations into £6.2 million in pay-outs.
It doesn’t work for everything — not all climate risks are insurable — but when it does work, the impacts can be immediate and life-altering. “We can’t save everybody, but for hundreds of millions of people it is absolutely doable,” he says, noting that practicality must supersede purism. “If we have a tool that can help that many people, why not use it?”
Insurance plus mitigation is cheaper than disaster relief
Pre-empting risks is crucial, continues Langdale. Not only does this build more resilience among vulnerable communities, it lowers the cost of covering them, making insurance accessible to more people for longer. He points to a group of informal urban workers that Humanity Insured is covering in India. They work in a women’s cooperative connected to the garment sector. “If they go to work when it’s too hot, they get ill, which means they are off work for a week or two, and the loss of earnings can be devastating for their families. There are also more serious health risks, from increased likelihood of miscarriage to people burning the soles of their feet,” he explains. “If we can provide parametric insurance which allows them to stay home when it’s too hot, covering lost wages for the day, they can get in front of the problem, own the solution, and invest in their future in a way they otherwise wouldn’t be able to.”
Extreme heat is quickly climbing to the top of garment workers’ priority list. In April 2024, global NGO Climate Resilience for All launched its Women s Climate Shock Insurance and Livelihoods Initiative (WCSI), just in time for the extreme heat season in India. Across three states, around 50,000 women working in informal sectors (including the garment industry) were able to access vital funds. Alongside payouts linked to extreme temperature thresholds (around 50 degrees Celsius), there are smaller direct cash payments available at lower temperatures (from 40 degrees Celsius), which can be just as damaging to health.
WCSI is also installing solar-powered lights on farms so workers can avoid the hottest hours of the day; providing reusable bottles because plastic water bottles start to disintegrate in the heat and can be carcinogenic; and burying water tanks to keep water cool.
Crucially, the insurance is paid directly to workers, which allows them to implement solutions throughout their lives, not just in the workplace, says Climate Resilience for All CEO Kathy Baughman McLeod. “A garment worker might be OK at work because the factory floor is cooled, but she will still face extreme heat at home. Night-time temperatures are critical to health and worker productivity. If you don’t sleep well, you’re more likely to make mistakes at work, which can lead to people getting hurt, especially in a factory setting.”
In Europe, the European Insurance and Occupational Pensions Authority (EIOPA) is advocating for something called “impact underwriting” to help cover the widening insurance gap. If adopted, this would push insurers to take a more active role in preventing damages (and therefore minimising payouts) ahead of time. For example, before offering to cover a new building, insurers would send a risk engineer to conduct an on-site assessment of the climate risks and advise the owner or renter on mitigation and adaptation strategies. This could range from upstream adjustments that minimise a company’s greenhouse gas emissions, to downstream efforts including distancing buildings from particularly flammable vegetation, training retail staff in disaster response, adding flood barriers to stores, or moving electric cabling from the floor to the ceiling to increase flood resilience.
“Waiting for a natural disaster or extreme event to happen is madness,” says Langdale. “It’s really expensive and it doesn’t actually work.”
The knock-on effects of building resilience
Insurance industry innovations should also be complemented by practical investments in mitigation and adaptation on the part of employers and the brands contracting them, says Baughman McLeod. “There is a deep injustice here. Often, these communities have contributed nothing to the climate crisis, yet they bear the biggest responsibility for it and face the biggest impacts,” she says.
However, fashion has notoriously complex and opaque supply chains, which brands have historically struggled to map. This means few brands know exactly which farms are producing their raw materials, let alone what climate risks those farmers are most vulnerable to.
Experts say that, by supporting (read: funding) parametric insurance programmes, brands can help build resilience in the broad regions they source from, and account for tangential issues that might affect their supply. For example, a cotton farmer might not need insurance for their cotton crop, but they might need it for another crop or another facet of their life. Without the insurance, they can’t continue to supply the cotton. “Ultimately, it’s about helping people deal with volatility,” says Langdale. “Climate change is not always about a Category Five hurricane wiping everything out. Sometimes it’s just about people not getting enough rain on time.”
Brands could also work with insurance-adjacent charities to identify risks and invest upfront to subsidise new programmes, or educate supply chain partners about the insurance available in their region, whether it impacts fashion production directly or indirectly.
In Kenya, Langdale points to a farmer called Peter who took out parametric drought insurance on a loan last year for $1.50, which Humanity Insured supplemented with an additional 40 cents. He didn’t need to claim in the first year, but has decided to continue paying for the insurance. “I asked him why he wanted to continue and he said he has 12 children and he can only send six to school if he doesn’t have the insurance,” says Langdale. “Before he had the insurance, he said he was so worried about drought that he kept money back every week to make sure he could feed his family if the harvest failed. That’s the beautiful thing about insurance: a tiny amount of money per person can change the way an entire population deals with risk.”
“Insurance has been highly under-utilised in our effort to build resilience,” says Barbara Cheshire, managing director and co-founder of Nairobi-based insurance industry catalyst AB Entheos, which worked with Humanity Insured to design a parametric insurance programme centred on human and wildlife conflict. “When people think about financial inclusion in Kenya, the focus is often on access to banking and credit, access to fintechs and phone access to mobile money. But over time, people’s financial health has actually gone down. If you experience illness or drought or flooding, suddenly you’ve lost the investment and you’re indebted to somebody. We simply don’t have financial resilience. Insurance can help to bridge that gap.”
The long-term vision is to build resilience in vulnerable communities that would otherwise slip through the cracks, says Langdale, enabling them to have more agency over their lives and livelihoods. While organisations like Humanity Insured and the Howden Foundation help to pay for these insurance programmes in the immediate term, eventually they will run on their own. Initially, a charity might contribute $5 for every $1 the community pays. But as payouts come through and people start to trust the insurance provider more, communities might be willing to pay in a little more. The pool grows, demand is proven and economies of scale kick into action, bringing the price down for everyone involved. Within a few years, the charity doesn’t need to offer subsidies anymore, and the programme can stand on its own two feet.
As brands invest in transparency and traceability, their climate risks will become clearer, presenting a prime opportunity for them to support vulnerable communities throughout their supply chains. Alongside increasing productivity and helping to secure future supply, working with these communities to build resilience through insurance could help ease tensions where systemic power imbalances have stripped supply chain workers of agency. “People can trust that a set amount of money will land in their account as soon as certain thresholds are met. That’s magical,” says Langdale. “It can really empower people.”
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