Brian Duperreault, the President and Chief Executive Officer (CEO) of insurance giant AIG, has said that mandating insurance protection for catastrophes is “maybe something that the government could enable.”
The insurance industry expert made the comment on a panel during the annual World Economic Forum (WEF) in Davos, Switzerland. The panel had a focus on stakeholder capitalism and notably the growing importance of ESG investments, and featured debates around both sustainability and the climate.
The panel’s moderator highlighted the fact that the insurance sector is perhaps more aware than most other industries of climate risk, and has been for a very long time. The sophistication of the market’s models was underlined, and Duperreault was questioned on whether the insurance space has any responsibility to share its models more widely.
“Do we have a responsibility to share the models? I’m not sure about that,” he said. “But, I will tell you that there are programs – the U.S. government covers flood, but when you actually look at the penetration of the people who buy the flood insurance it is very small. People who buy hurricane coverage, even in places like Florida, relatively small, earthquakes in California, and even in Japan the penetration for earthquake coverage is low.
“So, here is a consumer with an issue but is choosing not to insure. And, I think we all probably feel we will be lucky and will be safe and that it won’t hit us – so there is the buyers side of this thing that also has to be recognised,” he continued.
The lack of insurance penetration is most notable in emerging and underdeveloped parts of the world, such as part of Asia and South America. However, it also exists in mature markets like the U.S. and parts of Europe and Japan, for example.
The lack of insurance penetration, coupled with new and existing exposures that continue to expand, is contributing to the global protection gap – the disparity between economic and insured losses post-event – which is reportedly rising.
One way to increase insurance penetration is through government involvement and mandates, which was highlighted by Duperreault.
“So, who is going to superimpose, kind of standards around that to get them to buy? Insurance for automobile coverage is mandated by the states, you have to have insurance. So, would you do that? That is maybe something that the government could enable,” said Duperreault.
Adding, “They provide the program but they don’t make people buy it. By the way I am not sure that I want that done. We love our personal freedoms to make choices, but there are coverages available that people don’t take advantage of.”