IAIS highlights role of supervisors in response to future pandemics

The response to future pandemics is likely to involve multi-stakeholder insurance-based programmes, and insurance supervisors could act as a bridge between the insurance sector and government, according to the International Association of Insurance Supervisors (IAIS).

The IAIS and Access to Insurance Initiative (A2ii) have jointly published a note that looks at the role insurance supervisors could play in the design, development and implementation of insurance-based programmes for pandemic risk. The note considers key characteristics of proposals – including public-private partnerships and risk pools – and outlines the role(s) that supervisors can play as future initiatives are developed.

It says supervisors can play a role in advising on the risk-sharing implications that such initiatives could have for insurers from both a micro- and macro-prudential perspective. It adds that supervisors could potentially play a role in the collection, analysis and sharing of relevant data in order to assess any cumulative potential impact on the insurers’ operations.

“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 note states.

While the note does not preclude protection gaps such as health or mortality, the focus is on gaps in coverage for types of risk where diversification is more difficult to achieve, says the IAIS, in particular coverage for non-damage business interruption (BI) losses in the context of pandemics.

“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 programmes to address pandemic risk. Ideally, supervisors would be involved in the development of such programmes from the outset to ensure the design incorporates the insight and expertise that supervisors can bring,” the note states.

The IAIS says that a key role for supervisors includes providing technical and other advice to government on prudential risks associated with any insurance-based programme developed to address pandemic risk, and the regulatory framework under which such a programme could operate.

“Taking onboard 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. This can be through providing clarity on expectations with respect to fair treatment of customers, as well as through setting and implementing product oversight and governance requirements around market conduct risk,” says the note.

The IAIS says there may be scope to consider supervisory initiatives aimed at building prevention measures into pandemic risk coverage to enhance resilience against future pandemic, and lessons could be learnt from risk reduction or prevention measures that have been implemented to address other types of risk, such as natural catastrophe risk.

The note adds that 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, for example enabling a range of distribution channels and delivery strategies and demonstrating an openness to innovative forms of insurance.