FSI Insights note published on climate-related protection gaps from a reinsurance perspective
An FSI Insights note has been published today entitled “Mind the climate-related protection gap – reinsurance pricing and underwriting considerations”. The note was drafted by staff from the IAIS, BIS Financial Stability Institute (FSI) and the Swiss Financial Market Supervisory Authority (FINMA). It explores the policy implications of climate-related protection gaps from a reinsurance perspective.
Understanding and addressing protection gaps is a key focus area of the IAIS’ work, recognising its relevance to the IAIS’ strategic theme of supporting insurance in its societal purpose of building resilience. In this context, the essential role of reinsurance to enable primary insurers to provide coverage against NatCat losses and protect consumers is widely acknowledged.
The note builds on previous efforts by IAIS and FSI to support supervisors by raising awareness, facilitating understanding of and addressing protection gaps and related issues. It complements earlier works, including the IAIS report “A call to action: The role of insurance supervisors in addressing NatCat protection gaps” and in the FSI Insights No. 54 “Too hot to insure – avoiding the insurability tipping point”.
“Mind the climate-related protection gap – reinsurance pricing and underwriting considerations” examines how reinsurers’ pricing and underwriting practices may affect affordability and availability of coverage for NatCat events. It explores the structure and dynamics of the reinsurance market and its activities for addressing physical and transition risks, particularly in light of the increasing impact of climate change. Additionally, it considers the implications for the safety and soundness of insurers and reinsurers and investigates reinsurers’ approaches to climate risk adaptation and mitigation.
Tackling these challenges requires multi-stakeholder collaboration, including the sector, governments, policymakers and the scientific community.
The note is available here.
Read more about the IAIS work on protection gaps here.