IAIS, A2ii: supervisors could play a role in the design, development and implementation of insurance-based programs for pandemic risk

13 October 2022 — Marina MAGNAVAL
The recent note prepared jointly by staff members of the International Association of Insurance Supervisors (IAIS) and the Access to Insurance Initiative (A2ii) is focused on gaps in coverage for types of risk where diversification is more difficult to achieve as coverage for non-damage business interruption (BI) losses in the context of pandemics.

The main takeaways in the note include the following:

  • Supervisors can play an important role in helping to ensure that a balance of policyholder protection and market development considerations are built into the design and implementation of future multi-stakeholder insurance-based programs to address pandemic risk.
  • The role of supervisors will vary according to their respective mandate; supervisors with a financial inclusion or market development mandate may take a different approach to purely prudential and conduct authorities.
  • There will be no "one size fits all" approach to addressing pandemic risk protection gaps, and any approach will be shaped by the environment in the given jurisdiction.
  • A key role for supervisors includes providing technical and other advice to government on prudential risks associated with any insurance-based programs developed to address pandemic risk and the regulatory framework under which such a program could operate.
  • Taking on board lessons learnt from several high-profile cases relating to policy wording for BI coverage, supervisors can play an essential consumer protection role as future coverage for pandemic risk is developed.
  • There may be scope to consider supervisory initiatives aimed at building prevention measures into pandemic risk coverage to enhance resilience against future pandemics.
  • In readiness for future pandemics, supervisors could play an influential role in fostering certain conditions for local markets to enable multi-stakeholder initiatives aimed at expanding coverage for pandemic risk.
  • Concepts presented in this note, in the context of pandemic risk, could also be applicable to initiatives aimed at bridging protection gaps for potentially systemic risks, such as wide-scale cyber disruption or catastrophic climate-related events.
The development and implementation of initiatives aimed at improving accessibility and availability of insurance coverage against pandemic risk - or other types of risk where diversification is difficult to achieve - presents a unique challenge for governments, insurers and supervisors alike. As initiatives are considered, supervisors can play an important role, particularly in ensuring that the risk-sharing being taken on by insurers is sustainable from a micro- and macroprudential perspective. Supervisors may also have a role in ensuring such initiatives are suitable and appropriate in addressing a broader segment of policyholder needs and emerging risks unique to traditionally underserved segments of the population, including lower income groups and small/informal businesses that are most vulnerable to losses or slow financial recovery in these circumstances, the review said.

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