As part of a broader set of lessons learned from the COVID-19 pandemic, the International Association of Insurance Supervisors (IAIS) and the Access to Insurance Initiative (A2ii) have jointly released a communication examining the role that insurance supervisors play in design and development and implementation of insurance-based programs for pandemic risks.
The Communication addresses the main features of proposals – including public-private partnerships and risk pools – and outlines the role(s) regulators can play in the development of future initiatives.
The notice focuses on coverage gaps for risk types where diversification is more difficult to achieve, particularly coverage for business interruption (BI) losses related to pandemics. In this regard, the Communication draws parallels with supervisory approaches to dealing with other types of risk that challenge the diversification principle.
The concepts presented in the Communication will inform future work by the IAIS on pandemic vulnerabilities, as well as the role of regulators in addressing vulnerabilities more broadly.
The findings contained in the note are based on: interviews with senior officials from regulatory agencies representing different regions and from international organizations; from IAIS and A2ii stakeholder events held in the second half of 2021; and a review of the existing literature on pandemic vulnerability and insurability.
The central theses
Key findings from the review covered in the note include:
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Regulators can play an important role in ensuring that a balance between policyholder protection and market development considerations is built into the design and implementation of future insurance-based multi-stakeholder programs to address pandemic risk. Ideally, supervisors would be involved in the development of such programs from the outset to ensure that the design incorporates the insight and expertise that supervisors can bring to the table.
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The role of supervisors varies depending on their mandate; Regulators with a financial inclusion or market development mandate may take a different approach than purely regulatory and behavioral regulators. In some cases, supervisors may be well-placed to perform important coordinating or administrative roles. In other cases, the supervisor can provide input to a broader multi-stakeholder approach.
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There will be no one-size-fits-all approach to addressing gaps in pandemic risk protection, and each approach will be shaped by the context in each jurisdiction.
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A key role for regulators includes providing technical and other advice to the government on regulatory risks associated with insurance-based programs designed to address pandemic risk and the regulatory framework under which such a program might operate.
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Regulators could act as a bridge between the insurance sector and government, and play a role in advising on the risk-sharing implications such initiatives could have on insurers from both a micro- and macro-prudential perspective. Regulators could potentially play a role in collecting, analyzing and sharing relevant data to assess any potential cumulative impact on insurers’ operations.
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Taking into account the lessons learned from several high-profile cases involving insurance policy wording for BI coverage, regulators can play an essential role in consumer protection when future pandemic risk coverage is developed. This can be done by providing clarity on expectations related to the fair treatment of customers, and by establishing and implementing product oversight and governance requirements related to market conduct risk.
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There could be scope to consider supervisory initiatives aimed at including preventive measures in pandemic risk coverage to improve resilience against future pandemics. In this regard, lessons could be learned from risk reduction or prevention measures taken to address other types of risk, e.g. B. natural catastrophe risk, have been implemented.
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In preparation for future pandemics, regulators could play an influential role in promoting specific local market conditions to enable multi-stakeholder initiatives aimed at expanding pandemic risk coverage. Some examples could be: enabling a range of distribution channels and delivery strategies and demonstrating an openness to innovative forms of insurance.
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The concepts presented in this Communication in the context of pandemic risk could also be applicable to initiatives aimed at closing protection gaps for potentially systemic risks such as large-scale cyber disruptions or catastrophic climate-related events.
