The International Association of Insurance Supervisors (IAIS) has issued a report, “A call to action: the role of insurance supervisors in addressing natural catastrophe protection gaps,” highlighting the vital role of insurance supervisors in addressing the rising threat of natural catastrophe (NatCat) events due to climate change.
Protection gaps, defined as the uninsured portion of economic losses resulting from natural disasters, pose a significant challenge to both individuals and communities, the report noted.
As NatCat events continue to rise in frequency and intensity, the insurability and affordability of insurance coverage become increasingly strained, leaving many vulnerable to the devastating financial impacts of such events.
Shigeru Ariizumi, Chair of the IAIS Protection Gaps Task Force and newly elected Executive Committee Chair, highlighted the vital societal role of insurance in managing the financial aftermath of natural disasters.
He stated, “Insurance, including reinsurance, can substantially contribute to managing the financial impact of natural disasters, thus enhancing societal resilience. It provides financial protection against damage, aids in recovery and reconstruction and can incentivise adaptation, risk mitigation and preparedness. Against this backdrop, there is a role for supervisors to play in supporting the important societal function of insurance in addressing NatCat protection gaps.”
The IAIS report delineates five key areas where insurance supervisors can actively participate in mitigating the NatCat protection gaps, supported by real-world case studies across various jurisdictions within the IAIS regions.
These areas encompass contributing to the assessment of protection gaps, enhancing consumer financial literacy and risk awareness to encourage the uptake of insurance coverage, incentivising risk prevention measures, creating a regulatory and supervisory environment conducive to greater insurance availability and coverage uptake, and providing guidance to government and industry on strategies for financial inclusion and bolstering societal resilience in the face of NatCat events.
The IAIS recognises that the approaches to address protection gaps may vary depending on supervisory mandates and market conditions. Nevertheless, all insurance supervisors have a strong basis for action, given their roles in preserving financial stability and enhancing policyholder protection.
Jonathan Dixon, IAIS Secretary General, stressed that supervisors already possess a robust foundation for tackling protection gaps, adding, “For those supervisors that have objectives to promote financial inclusion and market development, actions to address protection gaps are even more central to their mandate.”
