IAIS has published a report on the role of insurance supervisors in addressing natural catastrophe (NatCat) protection gaps. NatCat events have become more frequent and intense due to climate change, which IAIS says may challenge the insurability and affordability of insurance coverage, leading to increasing protection gaps.
Insurance plays a key role in managing the financial impact of natural disasters. According to Shigeru Ariizumi, IAIS Protection Gaps Task Force Chair and Executive Committee Chair, insurance provides financial protection against damage, aids in recovery and reconstruction and can incentivise adaption, risk mitigation and preparedness. Supervisors, therefore, have a key role to play in supporting the societal function of insurance in addressing NatCat protection gaps, though IAIS acknowledges that supervisory responses will vary depending on mandates and market maturity, size and complexity.
The report outlines 5 areas where supervisors can help address NatCat protection gaps:
- Contributing to the assessment of protection gaps;
- Enhancing consumer financial literacy and risk awareness;
- Incentivising risk prevention;
- Fostering an enabling regulatory and supervisory environment to support insurance availability and coverage uptake; and
- Advising government and industry on financial inclusion and societal resilience.
IAIS also highlights that addressing NatCat protection gaps is a complex societal challenge requiring a multi-stakeholder approach, including the government, the insurance industry, consumers and policymakers among others.