GFIA Annual Report 2022-2023

CLIMATE RISKS

Gaps and guidance

GFIA works on a major protection gap study and comments on supervisory guidance on climate risks

By Christian Pierotti, chair of the GFIA Climate Risks Working Group

As climate-related records keep being broken (land and sea temperatures, periods of drought and heatwaves, melting of ice caps and glaciers, frequency and severity of floods and storms), GFIA’s Climate Risks Working Group continues to promote the essential role that the global insurance industry plays in providing financial protection against climate risks as well as in fostering prevention measures. It also collaborates with international stakeholders to support the national and international transition to greater sustainability, while putting the industry’s actions and positions forward.

The Climate Risks Working Group concentrates on crucial climate-related issues that are vital to this transition, such as sustainable finance and building resilience through prevention, adaptation and mitigation measures. The key focuses of the work GFIA has carried out over the last year are the closing of protection gaps related to climate risks and commenting on the development of supervisory guidance on climate risks.

Closing protection gaps

As GFIA initiated a global study on the issue of protection gaps, the Working Group took the opportunity to reflect on the consequences of the increase in climate-change related events on claims and develop recommendations of the main actions that policymakers should take to close the protection gap related to natural catastrophes. These were integrated into GFIA’s study, “Global protection gaps and recommendations for bridging them”, published in March 2023, which puts the global gap in protection against natural catastrophes at US$0.1 trillion, with around 60% of natcat losses not insured between 2011 and 2020. In addition to the financial costs, the report highlights the significant impact of natural catastrophes on peoples’ lives, wellbeing and livelihoods.

What is GFIA’s protection gaps study?

Average annual natcat losses per decade (US$bn)

The study’s seven recommendations focus especially on the need for close cooperation between the public sector and the insurance industry. They also aim to raise awareness of the importance of financial protection and the promotion of insurance products tailored to local needs. GFIA thus highlights the need for effective policies that allow insurers to play their key role in building resilience as well as in contributing to the development of appropriate solutions to close protection gaps.

While the insurance industry can contribute to reducing these protection gaps, a single stakeholder group alone cannot narrow them. Close collaboration between private and public stakeholders is necessary, as governments and other public entities can help build the appropriate regulatory environment, create fiscal incentives or conduct public awareness and prevention campaigns, among other actions.

These gaps are also being studied by the International Association of Insurance Supervisors (IAIS), which has created a special task force that examines the role of supervisors in closing them. GFIA has made two presentations of its study to the IAIS, which is expected to publish a report in November 2023 (see IAIS opinion article).

Climate risk supervisory guidance

In May 2023, GFIA responded to the IAIS’s consultation on climate risk supervisory guidance, calling for a supervisory approach that is adapted to the specific characteristics of the insurance industry and respects the differences in the climate-related risks and impacts faced by entities and jurisdictions. We argued that any IAIS initiative should consist of a principle-based framework that provides guidance rather than mandates.

“GFIA highlights the need for effective policies that allow insurers to play their key role in building resilience.”

Fostering dialogue

GFIA has continued its dialogue with many other stakeholders and institutions that are committed to achieving a low-carbon economy and promoting green investments.

In February 2023, GFIA met the Director of Climate and Environment and the Head of Switzerland and Liechtenstein from the Principles of Responsible Investment (PRI), a UN-supported network of investors that promotes sustainable investment through the incorporation of ESG issues into investment analysis. This conversation, focusing on the risks and opportunities for long-term investors such as insurers with regards to climate change, has provided a good basis for greater collaboration between GFIA and the PRI on sustainable investments and net-zero climate initiatives.

Beyond the protection gap issue, GFIA has also been invited by the IAIS to discuss climate disclosure standards and provide feedback on the insurance industry’s experiences of implementing the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosures.

Looking ahead, GFIA will continue to foster dialogue with other stakeholders and the sharing of best practices between its members. The Working Group is already working on the issue of land-use planning and will provide a joint response to the next two IAIS consultations on climate risk supervision and the modification of the Insurance Core Principles (ICPs) that will be published by the end of the year (see IAIS opinion article).

The Working Group will also engage with and monitor the work of international organisations and standard-setting bodies such as the International Sustainability Standards Board, the FSB and the IAIS. The COP 28 UN climate conference coming up in December 2023 will be the occasion to engage with stakeholders such as the United Nations, the World Bank and the Insurance Development Forum to promote the messages of the industry.

Christian Pierotti

France Assureurs

Christian Pierotti

France Assureurs

Print version

Awareness-raising campaigns

Insurers across Europe are involved in a broad range of awareness-raising campaigns. For instance, in Germany, risk-awareness campaigns are implemented jointly by state authorities, consumer protection organisations, the insurance industry, architects and other stakeholders. Their collaboration is built around a common goal: to raise awareness of the effects of climate change and natural hazards, of the benefits of loss prevention, and of best practices as regards natural catastrophe-resilient buildings. The high level of risk awareness in Germany is one of the reasons for the relatively low protection gap; indeed, the insurance penetration rate for natural perils such as storm or hail is more than 90%.
Most European insurance associations have initiatives to raise risk awareness, such as dedicated workshops, events and educational seminars, as well as frequent in-depth articles, themed newsletters, presentations and other publications.
Many French insurers have launched prevention campaigns and also support the campaigns of “Assurance Prévention”, an association founded by the French insurance association (France Assureurs). Assurance Prévention has produced numerous leaflets, infographics, quizzes, etc. to raise awareness of natural risks. Through its initiatives, it aims to develop a “culture of risk prevention” among students and teachers.

The Greek insurance association (HAIC) launched a digital awareness campaign — “Better to know than to think you know” — to provide consumers with useful information about private insurance and to set the record straight on some misperceptions. The campaign consists of six videos to educate the public about how private insurance works. Most of the videos emphasise the need for resilience in the face of natcat risks and the role of insurers in protecting private property. The videos are hosted on the interactive iknow-insurance.gr platform, which allows visitors to do a short quiz to test their knowledge of private insurance and then obtain additional information.
Insurance Sweden is currently working with its members on a common methodology for calculating carbon dioxide emissions during building repairs. The aim is to raise awareness of the impact on CO2 emissions of rebuilding after fire or water damage, and thus of the importance, from that perspective as well, of preventing such damages.
Insurance Sweden published a statistical report in October 2021 on how different municipalities and regions have been affected by damage caused by flooding, storm and fire.
Spotlighting the central role of municipalities in climate-change adaptation, Insurance Sweden ranks Swedish municipalities according to their adaptation work. The methodology is based on the European Commission’s Adaption Support Tool (2013). The ranking is released every other year, the June 2021 version is available here.
UNESPA, the Spanish insurance association, launched a dedicated website in October 2021 — “Naturalmente Protegidos” (Naturally protected) to explain how natcat insurance works in Spain. It focuses on 10 different risks (rain, flood, wind, drought, frost, hail, snow, earthquake, volcanic eruption and lightning) and details for each how insurance covers property, life, harvests and livestock. The website illustrates the success of the Spanish public-private natcat insurance model. It was jointly developed by private insurers (UNESPA), the Consorcio de Compensación de Seguros (CCS) government scheme and Agroseguro, Spain’s agricultural insurance system, and was launched within the framework of Estamos Seguros, UNESPA’s financial education campaign (running since 2016).
In collaboration with CEPYME, the Spanish confederation of SMEs, UNESPA launched in October 2020 “Prevenir para crecer” (Prevent to grow), a website with information on insurance for SMEs. The website highlights potential risks to which SMEs are exposed, including natcat-related risks, and provides advice on how to prevent them.
Insurance Ireland, the Irish insurance association, and a number of Irish insurers have launched consumer blogs and information repositories on their websites to share useful information with consumers about responsible and ESG investing.

Education

The European insurance industry works to increase financial literacy in relation to risk awareness, insurance protection and long-term savings:

The Croatian Insurance Bureau (HUO) launched a first educational project in 2009, “Financial literacy in the Republic of Croatia”, which was followed by a range of educational activities, often implemented jointly with independent insurers. One of these activities, “Safer Tomorrow”, was initiated in 2021, and aims to raise citizens’ awareness of the benefits of insurance. Within the framework of the project, HUO launched several videos and infographics, some of which specifically target young people.
The HUO organises a yearly competition for the best scientific paper, the best graduate thesis and the best undergraduate thesis in the field of insurance. HUO also publishes the “Croatian magazine for INSURANCE”, a scientific journal for professionals to advance good practice in the sector. Finally, some insurers in Croatia created a colouring book for children to promote financial literacy at a young age in a fun and simple way.
In Italy, the ANIA Academy, together with CeTIF (Research Centre on Technologies, Innovation and Finance of the Università Cattolica del Sacro Cuore), launched the second edition (2022) of the 2nd level master’s in insurance management to train professionals and enable them to respond to the challenges of the “new normal”.
ANIA is also collaborating with LUISS Business School to develop a major course in insurance management as part of its Executive Master in Financial Management.
Insurance Europe produces information for consumers as part of its “InsureWisely” financial education initiative. This includes one-pagers on different insurance topics, including how to limit the effects of natural catastrophes.
The French insurance association (France Assureurs) developed a series of educational booklets within the framework of EDUCFI (the French national strategy for economic, budgetary, and financial education), an initiative launched by the French Central Bank. These booklets help users to better understand how insurance works and what insurance products do and do not cover.
The Spanish insurance association (UNESPA) set up a financial education programme for schools, “El Riesgo y Yo” (“The Risk and I”). It involves 40 insurance undertakings and 164 volunteers and aims to give 2 500 teenage school students basic financial knowledge and insights into risk management.