GFIA Annual Report 2023-2024

Opinion: Disaster risk and Protection gaps

Disaster risk and Protection gaps

Increasing international focus on the role of insurance in addressing a key risk to societal resilience

Disasters - whether the consequence of natural hazards such as floods or earthquakes or of human threats such as cyberattacks – can destroy buildings and infrastructure, disrupt economic activity and create financial hardship for the affected individuals, households and businesses. Insurance can play a critical role in assuming a portion of these risks and providing a source of funding to help societies recover and rebuild. It can also make a critical contribution to improving society’s understanding of these risks and providing a price signal to incentivise prevention and risk reduction. Higher levels of insurance coverage for disaster risks can reduce post-event economic contractions, speed post-disaster recovery times and reduce the disaster recovery burden on taxpayers.

However, there are significant protection gaps for many disaster risks (ie in terms of the gap between the amount of economic losses incurred and the amount of losses absorbed by insurance markets). GFIA’s own important work on protection gaps in early 2023 demonstrated the substantial gaps in financial protection against natural hazard and cyber risks as well as in health and pensions. While important progress is being made in expanding access to insurance coverage and retirement savings options in many parts of the world, environmental, economic and social trends such as climate change, digitalisation, ageing populations, urbanisation and globalisation will make it increasingly challenging to close these protection gaps in the future.

“GFIA’s own important work on protection gaps in early 2023 demonstrated the substantial gaps in financial protection against natural hazard and cyber risks as well as in health and pensions.”

Understanding protection gaps: a global challenge

Protection gaps for disaster risks have been a longstanding priority for the OECD Insurance and Private Pensions Committee (IPPC), whose main objective is to maximise the economic and social benefits of insurance and pensions markets. In November 2023, the OECD Council adopted an updated OECD Recommendation on Building Financial Resilience to Disaster Risks to provide governments with high-level guidance on managing the financial impacts of disasters – including by leveraging the risk expertise and financial capacity of the insurance sector. The OECD IPPC has also been leveraging its unique strength as a convenor to bring together key stakeholders from governments, regulators, supervisors and the insurance sector for regular roundtables on protection gaps, providing an opportunity to share experiences and lessons from around the world. The roundtable organised in December 2023 offered an opportunity to share lessons between the insurance and pensions sectors, which face similar challenges in terms of ensuring that individuals have access to – and demand for – the financial tools necessary to mitigate potential financial vulnerabilities.

There is increasing international attention to addressing natural hazard risks. In May 2024, the G7 Finance Ministers and Central Bank Governors welcomed a G7 High-Level Framework for Public-Private Insurance Programmes against Natural Hazards, developed based on contributions from the OECD and IAIS. The G7 High-Level Framework provides a step-by-step guide to addressing protection gaps in natural hazard insurance, from undertaking an assessment of the protection gaps that could lead to financial vulnerabilities to implementing policy, regulatory and/or supervisory measures to reduce protection gaps to considering the establishment of a Public-Private Insurance Programme – and how to design such a programme.

Learn how countries are tackling flood risk

“Protection gaps for disaster risks have been a longstanding priority for the OECD IPPC, whose main objective is to maximise the economic and social benefits of insurance and pensions markets.”

Collaborative solutions for resilience

Addressing protection gaps will require continued collaboration between governments, insurance regulators and supervisors and the (re)insurance sector. The OECD will continue to provide high-quality analysis on this issue and a forum for countries and stakeholders to share experiences and potential solutions, including through ongoing and planned work on flood risk insurance programmes (see Box), protection gaps in retirement savings and insurance for natural hazard risks in Asia and the relative benefits and limitations of an insurance-based approach to responding to large-scale risks.

Collectively, we have much work to do if we want to effectively address the challenges that are leaving so many unprotected against the growing financial impacts of disasters and I can assure you that these issues will continue to be an important component of our work at the OECD.

“Addressing protection gaps will require continued collaboration between governments, insurance regulators and supervisors and the (re)insurance sector.”

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.