Government and Private Solutions for Uninsurability

I am happy to co-author this article with Beatrice WEDER DI MAURO, President of the CEPR - Centre for Economic Policy Research, reflecting on the urgent need to engage in collective thinking and action to adapt our response to the challenge of insurability in the face of escalating climate risks. This article, which captures key convictions from our joint workshop hosted at Collège de France by the AXA Research Fund and CEPR - Centre for Economic Policy Research, couldn't have been more timely.   Devastating floods in Valencia, the wildfires in Los Angeles, the typhoons in Mayotte and La Réunion... These recent climate catastrophes show a clear reality: climate risks are intensifying and the protection gap for local communities and economies are becoming evident. Global economic losses from extreme weather events reached $320 billion in 2024, while in Europe, only 25% of economic losses were insured - leaving individuals, businesses, and communities vulnerable.    To address this, we need to enhance risk-sharing mechanisms and promote partnerships between public institutions and private companies.   Ensuring insurance accessibility and effectiveness is crucial. This can be done through: ➡️ Hybrid models, combining market mechanisms with public-private partnerships, to help ensure broad coverage and affordability. France’s CatNat regime and Switzerland’s hybrid model offer valuable insights. These models can be adapted to regions facing extreme exposure, such as sea level risks. ➡️ Greater investment in prevention and risk-sharing mechanisms. Initiatives like local municipal risk assessments can help small municipalities assess and mitigate local climate risks. ➡️ Impact underwriting, where insurers incentivize policyholders to adopt risk-reducing measures in exchange for lower premiums. ➡️ Public education on climate risks and stronger coordination between insurers, governments, and consumers to ensure preventive measures are taken seriously.   As we move forward, it's clear that policymakers, insurers, and society must work together to strike a sustainable balance between affordability and fiscal viability. This is not just about who pays the bill. It is about how we manage risk in an increasingly uncertain climate landscape. Let's continue to foster collaboration and innovation to close the protection gap and build a resilient future. 👇 https://lnkd.in/er6BkrtZ

When the river rises, what truly protects a family? A government cheque after the damage or a promise designed decades before it? Across Asia, after every flood, cyclone, or pandemic, we repeat same ritual. Relief trucks arrive. Emergency funds are announced. Families wait. Not for payouts but for handouts. It looks like compassion. But structurally, it’s a failure. And if you work in policy, finance, or insurance, this failure is ours. Perhaps we have forgotten that real resilience is never built after disaster. It is built quietly, years earlier inside balance sheets, bond markets, and regulations few people see. Insurance was meant to be society’s memory: converting today’s premiums into tomorrow’s certainty. Still if you look across much of Asia, insurers make 30 to 40 year promises without access to 30 to 40 year capital. That mismatch is the original design flaw. Under IFRS 17, insurance liabilities now move with interest rates. Without matching assets, earnings swing violently. A decade of low rates pushed insurers toward illiquid assets and offshore reinsurance, quietly increasing systemic risk. When protection gaps persist, governments step in. On average, contingent liabilities cost ~6% of GDP and in crises, nearly 40%. These numbers don’t live in spreadsheets. They show up in children pulled out of school and farms sold under distress. History shows another path. Vietnam lifted penetration from <0.5% to ~3–4% through supervision reform. Korea built deep bond markets : insurance penetration crossed ~11%. Indonesia used guarantees to crowd in insurer capital for power infrastructure. Now consider the missed opportunity. Asia needs ~$1.7T every year for infrastructure, long dated, inflation linked cash flows ideal for insurers. Infrastructure debt defaults run ~5 to 6% with ~80% recoveries. Yet ASEAN insurers invest <2% of assets here. Meanwhile, in India, 93% of catastrophe losses remain uninsured. We’ve mistaken post disaster relief for resilience, because preparedness is invisible until it’s missing. Solution? It's architectural, not ideological: Deeper local bond markets, solvency rules aligned with long term ALM, liquidity supervision, And transparent fiscal risk reporting before shocks become debt crises. Ultimately disasters don’t test compassion. They test preparation. And preparation cannot be improvised. #Insurance #CapitalMarkets #FinancialResilience #ClimateRisk

Malaysia's stark protection gap, where 60% of its population remains uninsured, is not merely a statistic but a reflection of systemic fractures. This vulnerability stems from profound affordability barriers, especially among rural communities and gig workers where insurance premiums compete with basic needs; misaligned products ignoring climate risks and informal economies; and deep-seated distrust fueled by complex claims and opaque terms. The societal cost is devastating: families face financial ruin from medical emergencies or floods, SMEs collapse after single disasters, and overburdened public hospitals buckle under preventable strain. When 38% of healthcare costs are paid out-of-pocket and climate disasters drain national coffers, this gap becomes a threat to Malaysia’s economic stability and social fabric. Closing this chasm demands unified action. The government must spearhead inclusivity through targeted subsidies, expanding tax relief and co-funding premiums for farmers, retirees, and low-income families via programs like DITO licenses. Public-private partnerships should establish a National Parametric Pool for floods, using automated weather-triggered payouts to offer immediate relief. Simultaneously, regulators must simplify policy language and claims processes to rebuild trust. I have longed suggested for the national insurance associations to launch something like CII UK’s Aldermanbury Declaration, but no one seems interested to know more. Insurers, meanwhile, must innovate aggressively. Micro-takaful products priced at RM 1/day can cover hospital cash or crop loss for informal workers. Mobile-first solutions, like photo-based claims via apps, can reach rural communities, while AI-driven pricing adjusts premiums for at-risk groups like diabetic elders. Critically, leveraging retired practitioners as community educators can demystify insurance using local trust networks. Progress is emerging. A Takaful company’s app-based coverage for gig workers and India’s satellite-powered crop insurance prove scalable models. By embedding flexibility into products and empathy into outreach, Malaysia can transform its protection gap into a shield of resilience, where no family fears a medical bill or a monsoon rain. This is not just economic policy; it is a moral imperative for a nation poised to rise. Takaful operators can advance social protection through community-based risk-sharing models that prioritize inclusivity and ethical finance. By deploying micro-takaful schemes, they can extend affordable coverage to underserved individuals, addressing systemic gaps in climate resilience, healthcare, and financial safety nets . Blended finance initiatives merged with philanthropic capital and commercial funding can create sustainable protection pools for vulnerable groups. This embodies ta’awun (mutual assistance) as a socioeconomic imperative. https://lnkd.in/gUPJy8AW

🌍 Read the new report "Synergy Solutions 2025: Closing the Climate and Disaster Insurance Protection Gap" by the United Nations convened Expert Group on Climate and SDG Synergy 🔹 The challenge: 💸 62% of global economic losses from natural disasters are uninsured. In Africa, this rises to a staggering 99.5%. Climate risks are pushing regions toward becoming ‘uninsurable’. 🔹 Key solutions outlined: 🛡️ Integrate disaster risk financing into national development plans 📈 Incentivize insurance uptake via regulation, subsidies & reinsurance support 🏗️ Invest in risk reduction—every $1 spent can save up to $13 in recovery 👥 Promote inclusive microinsurance & adaptive social protection 🔄 Foster synergies between disaster insurance and SDGs—1% insurance rise = 5.8% closer to SDG targets 🔹 The impact: ✅ $15–25B investment could extend coverage to 3B more people ⚠️ Without action, uninsured global losses could reach $560B annually by 2030 💬 How can governments and the private sector better collaborate to keep vulnerable communities insurable in a warming world? #ClimateFinance #RiskResilience #DisasterRiskReduction #SDGs #ClimateAdaptation #LossAndDamage

Insurance is the canary in the coal mine | Public Private Partnerships offer a path to greater societal resilience The European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA) published a very important discussion paper last month which persuasively argues for the establishment of an EU public-private reinsurance scheme and an EU fund for public disaster financing. These innovations would incentivise households, businesses, and governments to deploy (stronger) risk management practices and enhance their financial resilience in the face of growing climate related risks. Why has the ECB and EIOPA invested so much time and energy into researching this space and making these proposals? 1. Insurance protection gaps are growing: Natural catastrophes caused around €900 billion in direct economic losses within the EU between 1981 and 2023, with 20% of these losses occurring in 2021-23. However, only about 25% of these losses were insured and this share is declining as illustrated below. Climate change is increasing the frequency and severity of natural catastrophes, meaning that losses will grow. In response, (re)insurers will increase premiums to pay claims, creating affordability challenges. (Re)insurers companies will also stop offering insurance in high-risk areas, leaving households and businesses unprotected. 2. Growing protection gaps will cause greater financial instability: This work builds on a 2023 Paper in which the ECB and EIOPA provided evidence that the lack of insurance can slow down economic recovery following disasters, increase banks’ exposures to credit risk, and weaken the fiscal position of governments when they step in to cover uninsured losses. We know that governments across Europe are already operating with incredibly stretched budgets, so where is this money going to come from? The ECB and EIOPA believe that public-private partnerships (PPPs) are a crucial part of the solution. 3. The Paper’s recommendations are based on an examination of 12 PPPs: These proposals are informed by an examination of 12 global PPPs, eight of which are in Europe. These schemes improve insurance coverage and reduce the protection gap. The average share of insured losses in European countries with a national PPP is 47%, while it is 18% in countries without a national scheme. Importantly, these schemes frequently include risk mitigation measures such as incentives for homes in flood-prone areas to be flood-proofed. 4. The business case for national PPPs: While the Paper promotes an EU-wide PPP, it implicitly makes the case for national PPPs and explicitly states that an EU-wide scheme would supplement national schemes. Further, national schemes provide greater societal resilience and do not crowd out the private sector. Rather, they are complementary, covering risks that (re)insurers would not underwrite alone. #sustainability #sustainabledevelopmentgoals #sdg13 #insurance

Less than one-tenth of disaster losses in poorer nations are insured. In these contexts, Public-Private Insurance Programs (PPIPs) offer a promising solution. With my colleagues Bianca Adam and Stephane Hallegatte, we examine how public-private collaboration can help close the protection gap even in low-income countries with no well-established insurance sector. These programs mobilize public and private resources and expertise to deliver scalable, adaptive, and financially sustainable solutions. Public-Private Insurance Programs (PPIPs) require going beyond single instruments, thinking strategically about short- and long-term priorities, leveraging private sector's capital and expertise, and nurturing government vision and ownership. #insurance, #disasterriskfinance, #financialresilience https://lnkd.in/ecKrGFyj