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Index Insurance: 2020 Status and Regulatory challenges

With its impact on areas like agricultural insurance and climate risk, index insurance can address several SDGs, including 2: Zero Hunger and 13: Climate Action.

The use of index insurance as an alternative to traditional indemnity-based insurance has increased over the last twenty years, particularly as a mechanism for insuring against extreme weather risks. More recently, the range of index insurance products has expanded to protect against other types of natural disaster, such as earthquake risk.

While index insurance products continue to be developed and offered, it is important that insurance supervisors have the capacity to understand and assess them and the necessary powers and tools to supervise them.

Read the paper on index insurance here.

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Regional Dialogue on SDGs and Insurance

The A2ii, the Asociación de Supervisores de Seguros de América Latina (ASSAL), and the International Association of Insurance Supervisors (IAIS) held a Regional Dialogue on “Insurance and the Sustainable Development Goals”,
on Thursday, September 16th, 2021, in which Insurance services were discussed as major allies for governments committed to reaching the SDGs.

The Access to Insurance Initiative (A2ii), the Asociación de Supervisores de Seguros de América Latina (ASSAL), and the International Association of Insurance Supervisors (IAIS) are pleased to invite you to join us in the next A2ii-ASSAL-IAIS Regional Dialogue on “Insurance and the Sustainable Development Goals”, which will take place on Thursday, September 16th, 2021, from 16:00 to 17.30 (CET).

“Insurance supervision has a very important role to play because through regulatory and policy initiatives, and also, and not to forget this, the related standard implementation work supervisors can ensure that their insurance markets offer the necessary range and diversity of products and services in a stable environment and with a fair treatment of policy holders and that supports the development goals in an inclusive way.” - Manuela Zweimuller, A2ii-ASSAL-IAIS Regional Dialogue on Insurance and the Sustainable Development Goals

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KPI Reporting Project

The A2ii, in partnership with FSD Africa, Cenfri and under the guidance of a Steering Group of SSA insurance supervisors (Ghana, Kenya, Malawi, Mauritius, Uganda and West and Central Africa (CIMA), chaired by South Africa), are currently working on the KPI Reporting Project. The project aims to help supervisors collect and analyse better data in carrying out their mandates and objectives, including aligning the insurance sector with the SDGs8.

These nine selected SDGs were selected based on a few considerations: where there has been evidence of impact, where some insurers have mapped their initiatives, where some supervisors have started collecting data, and where global stakeholder discussions have focused.

Find more information about the Reporting project and its handbooks here.

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Insurance and the Sustainable Development Goals: 

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Insurance and the Sustainable Development Goals: 

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The repercussions of the global pandemic on people’s lives and economies have reignited the discussions around the role of insurance in sustainable development efforts and the 2030 Agenda. The SDGs represent the common language for setting aspirations and alignment among the insurance industry, supervisors and policymakers. More work therefore needs to be done to widen the insurance vocabulary and articulate how insurance can support sustainable development.

Recent Highlights

H.M. Queen Máxima of the Netherlands, United Nations Secretary-General's Special Advocate for Inclusive Finance for Development, opened our Public Dialogue on Insurance and the SDGs on 22in April 22nd, 2021, Earth Day, which has d 200 participants from 50 countries. She highlighted the importance of access to insurance for Covid-19 response and recovery and as a mechanism to achieving the SDGs.

“By increasing resilience, insurance contributes to achieving the sustainable development goals. Insurance usage facilitates risk management and productive investment. It helps smallholder farmers and micro entrepreneurs invest more in their businesses and take on more risk once protected. These outcomes contribute to as many as 17 SDGs such as inclusive growth, food security, climate action and health.”

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iii-lab: The Inclusive Insurance Innovation lab (iii-lab) is a part of A2ii’s core capacity building activities.   The Inclusive Insurance Innovation Lab (iii-lab) is an international capacity-building programme where 4 countries' teams made up of a wide range of stakeholders of the inclusive insurance sector work on innovative solutions to advance the development of their insurance market.

A2ii-IAIS Public Dialogues provide a platform for exchange and learning for a wider community of stakeholders, including the industry. The Dialogues are one-hour thematic exchanges introduced by expert/supervisors’ presentations. Presentations from the Dialogues are made available on the events’ pages, and post-event summaries are made available on the A2ii Blog.

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Policy Note:

Beyond risk transfer, insurers can offer products and services that encourage consumers to adopt measures for disaster risk prevention, mitigation and reduction. Furthermore, insurers can support efforts towards long term climate adaptation. Through underwriting climate-related risks, insurers accumulate data and expertise that enables them to monitor their evolution. The insurance sector is thus well-placed to contribute expertise to national or global initiatives and help devise new climate risk solutions.

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Quote:  “Think of a woman selling tomatoes in Kenya. Her most basic issue is the stock. In case there's a fire in that particular market, she would lose everything that she brought that morning to sell.” (Elias Omondi, IRA Kenya), Quote SDG 1 A2ii Website

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Training: https://connect.a2ii.org/group/40

a dialogue based on the Sustainable Insurance Forum (SIF) and IAIS joint Application Paper on the Supervision of Climate-Related Risks in the Insurance Sector. The paper aims to support supervisors in their efforts to integrate climate risk considerations into the supervision of the insurance sector. Participants will hear from experts from the SIF and IAIS who will present highlights from the application paper as well as invited supervisory authorities who will share experiences related to supervision of climatic risks in emerging and developing markets.

Blog: Supervision of climate-related risks in the insurance sector | Access to Insurance Initiative (a2ii.org)

Supervisors are increasingly recognising the importance of their role in addressing climate risks. In some jurisdictions, supervisory authorities have launched various initiatives to address climate-related risks in their markets.

The risks associated with climate change fall into two categories: physical risks arising from climate trends (e.g. sea-level rise) and related extreme events, and transition risks associated with the transition to a low-carbon economy which may trigger among other things, new market dynamics and policy changes.[1]

While climate change poses a number of risks for the insurance sector, it also presents opportunities for the sector to build resilience. Within its role as a risk manager, a risk carrier and a risk investor, the insurance industry is well placed to build resilience against the impacts of climate change and support the transition to a low carbon economy.

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Quote: 14% of the population of the world lives in Sub Saharan Africa. That same population only contributes 2% of the global carbon emissions. Yet, our population remains the most vulnerable to climate change. Despite all this, only 3% of climate financing makes its way to Africa. Most national catastrophes remain uninsured and the only way to protect our population is through preparedness, risk management and insurance.- (Delphine Maidou, AIO at the 16th Consultative Forum on Climate and Disaster Risk organised by the A2ii - IAIS - MiN and AIO in 2019)

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🌎In the Caribbean, building greater climate resilience activities remains a priority. There is rising interest in index-based insurance to cover weather risks, and work is underway on a proposed microinsurance bill in Jamaica.

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iii-lab: Third iii-lab with a topical focus on climate launched in October 2021 with 71 participants from 4 countries: Costa Rica, Grenada, Zambia, and Zimbabwe

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SDG 13: Climate Action  Regional efforts:

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SDG 13: Climate Action  Regional efforts:

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Policy Note:

Developing and emerging countries, as well as lower-income communities, are most exposed to and suffer the most damages from climate risk. Furthermore, they have less resources available to repair and rebuild their lives after a catastrophic event. Beyond risk transfer, insurers can offer products and services that encourage consumers to adopt measures for disaster risk prevention, mitigation and reduction. Furthermore, insurers can support efforts towards long term climate adaptation. Through underwriting climate-related risks, insurers accumulate data and expertise that enables them to monitor their evolution.

Annual Report Data: Weather and climate-related events caused US $328 billion in economic losses in 2021, of which 62% were not covered by insurance. Climate change is no longer seen as a projection for emerging or new risks but an ongoing reality that threatens the stability of the financial system and the insurance sector as a whole. Supervisors can play a crucial role in reducing the insurance protection gap, by enabling innovation and the deployment of new technology in their market, ensuring that these solutions are offered in a responsible and sustainable way, and stimulating demand and appetite for such solutions.

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🌎In the Central, Eastern Europe and the Transcaucasia CEET region, there is increasing interest in... certain regional-specific risks, such as earthquakes and floods, indicating a gap that natural catastrophe insurance can cover.

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🌎In 2021, (in Asia Pacific), new regulation and laws were introduced in Malaysia and Cambodia, and Pakistan made advancements in gender inclusiveness by issuing a circular that requires insurance companies to adapt, and report back on, gender diversity measures, and another circular seeking the collection of gender-disaggregated data from the industry.

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Quote: “The protection of people and assets is a key component of sustainable development. In the absence of any formal protection mechanism, when faced with risk events, people with low incomes typically rely on informal coping mechanisms for recovery. Without effective insurance, it is unlikely that sustainable development will ever be truly achievable.” - Gorazd Čibej, AZN, Slovenia, IAIS regional coordinator for the CEET Region and Managing Director of the Insurance Supervision Agency, at the regional conference.

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SDG 8: Decent Work & Economic Growth , SDG 9: Industry,Innovation & Infrastructure 

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SDG 8: Decent Work & Economic Growth , SDG 9: Industry,Innovation & Infrastructure 

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In developing economies where SMEs play a key role as economic drivers, insurance is instrumental for increasing business resilience, spurring business investments and, thereby, contributing to enterprise growth. Covers such as fire, flood and business interruption insurance can sustain their ability to continue operating and paying their employees through financial difficulties.

Policy Note:

SDG 8 is the only SDG where insurance is explicitly mentioned. As a private risk transfer tool, insurance provides an option for those without the privilege of formal jobs and social security benefits. In a sense, insurance catches segments that fall between cracks in social protection systems, such as gig economy workers, domestic helpers and construction workers, many of whom are also rural or overseas migrants who may be excluded from healthcare and social security.

SDG 9: Insurance helps assume and diversify risks faced by large, medium and small businesses and large-scale infrastructure projects. Particularly in developing countries, insurance helps to increase the access of small-scale industrial and other enterprises to financial services, including affordable credit, and their integration into value chains and markets. (…) Through its risk management requirements, insurance not only protects, but can also promote sustainable industrialisation and quality, resilient infrastructure.

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Event:  Women‘s Access to Insurance (A2ii-IAIS Public Dialogue, 27 May 2021)

From the Blog:  Mainstreaming gender in inclusive insurance – the time is now!

Insurance regulation needs to move from being gender-neutral to being gender aware. In other words, all stakeholders must be deliberate in efforts to close the gender gap in access to insurance. Gendered considerations should not be an afterthought but a core pillar of inclusive insurance work.

The A2ii: We have drafted a gender action plan that identifies the different efforts we need to make, who the owners of these efforts are within our team, what the desired outcomes are, and the timelines to do so. The next level is now to ensure that we transfer these aspects into our activities and tools for insurance supervisors.

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The project: 'Empowering supervisors to improve women's access to insurance', the A2ii is providing insurance supervisors with the knowledge and tools needed to facilitate better access to high-quality insurance for women.

The Supervisory KPIs Lexicon, with 14 indicators in relation to SDG - (are) metrics that can be used by supervisors and policymakers to get a better understanding and advocate for women’s access to insurance in their markets.

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Policy Note:

Insurers can support gender equality by offering products and business models that consider gender differences, thereby increasing uptake of insurance by women and strengthening women’s ability to participate in the labour force. Women and men tend to work in different employment sectors, and women often work in more vulnerable sectors – amidst the Covid-19 pandemic, women are overrepresented as frontline healthcare workers and as carers at home for children and the elderly. Most single parents in the world are also women. Such gender roles, on top of biological differences, shape the risks that women face – and insurers can play their part by being sensitive to the diversity of needs.

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Quote: “People need health insurance at a time of a pandemic, but they need it when there is no pandemic, too'.” Craig Thorburn from the World Bank, during the 1st Pandemic Risk Webinar the A2ii and the IAIS held mid-2020.

Event:  Closing the Health Financial Protection Gap: Expanding Access to Health Insurance in Times of Crisis and Beyond - Public Dialogue

Quotes from the event:

1) “It is in particular important to think about the most vulnerable because health expenditure can really also put the most vulnerable in even more poverty than there are already.” Manuela Zweimuller

2) A willingness of regulators to engage with companies ... and understand the practical challenges they face in bringing services to consumers can help overcome regulatory barriers for expanding health and health insurance services. - Asitha Rodrigo, Chief Technology and Product Officer at BIMA

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Annual Report Data: Each year, over 800 million people – the majority living in developing countries - suffer a financial catastrophe from paying out-of-pocket for health care. Expanding access to health insurance can therefore be considered a key measure for reducing financial hardship in the Global South.(…) . Beyond the household level, insurance can contribute to better healthcare systems through products that support risk management along the health delivery value.

Policy Note:

Insurance supports good health outcomes. Health insurance lowers, or even removes, financial barriers to obtaining healthcare. .(…) Insured households are less likely to incur devastating out-of-pocket health expenditures, whereby insurance also prevents poverty (SDG 1) and hunger (SDG 2).

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🌎In Sub-Saharan Africa, Ghana’s new insurance law aimed to deepen the insurance penetration and increase access to insurance for the population; and particularly mentioned are farmers, those in the informal sector, and those with low incomes.

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Policy Note:

Insurance can support risk management in the food production value chain, thereby being a key component of measures to achieve food security (…) Agricultural insurance can help smallholder farmers build resilience against losses from adverse events, while also strengthening access to credit and incentivising investment. Business interruption insurance can cover disruptions in food processing and transportation. Property insurance can protect food production facilities and their own homes. In the long run, insurance encourages farming and food production that is more sustainable, productive and resilient to disaster and climate-related risks (SDG 13). This further enables more stable livelihoods for smallholder farmers.

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Quote: “Most farming is done by small scale farmers. It is not only social and employment matter, it's also quite relevant for food security. That we have something to eat, depends  moredepends more or less on the faiths of these small scalesmall-scale farmers...”

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SDG 1: No Poverty & SDG 10: Reduced Inequalities  Regional efforts: 

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SDG 1: No Poverty & SDG 10: Reduced Inequalities  Regional efforts: 

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Policy Note: Insurance can help prevent people from falling into poverty and escape the poverty trap. Financially vulnerable people often work in high-risk jobs or low-salary occupations and are often one disaster away from poverty. For them, an illness, death, an accident, a fire or a natural disaster is much more damaging, compared to a counterpart who has enough savings or a stable income to buffer the sudden expenditure. Insurance can alleviate this by providing a contractually enforceable pay-out when such an event happens – the key  of formal insurance over informal insurance.