Steven Vanackere: Closing the insurance protection gap
Opening speech by Mr Steven Vanackere, Vice-Governor of the National Bank of
Belgium, at the Colloquium on "Closing the Insurance Protection Gap", organised by
the Belgian Financial Forum, Brussels, 26 February 2024.
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Ladies and gentlemen, allow me to welcome you to this Colloquium on 'Closing the
insurance protection gap', organised by the Belgian Financial Forum.
Whether you define protection gaps more narrowly as the difference between the
amount of insurance that is economically beneficial and the amount of coverage
actually purchased or by referring to the broader risk protection gap which describes the
difference between total losses and insured losses, we can all recognise that insurance
protection gaps are at the core of several societal challenges. In order to, as the title of
our colloquium suggests, "close them", it is vital we have a good understanding of 'how
they arise' and 'how to tackle them'?
When discussing and solving these challenges, all relevant stakeholders need to be
involved: (1) insurance and reinsurance companies offering affordable and solid
insurance protection, (2) consumers/policyholders which can buy insurance contracts to
help protect themselves from suffering losses, (3) governments which can help set-up
the right institutional framework, and, finally, (4) supervisors, which through their
mandates of preserving financial stability and/or enhance policyholder protection, can
help acting on protection gaps.
Protection gaps can arise in many different areas: natural catastrophes, cyber,
healthcare and pension risk most notably. The focus of today's colloquium is to delve
deeper into two of the most prominent insurance protection gaps, natural catastrophe
risk and cyber risk.
With cyber risk becoming a greater threat to the global economy, we observe that
businesses turn to insurance companies for protection in order to cover the financial
losses resulting from a cyber-attack. IAIS estimates that the global cyber insurance
market amounted to 13,7 bn USD gross written premium in 2022. Year after year a
strong increase in premiums volumes is observed which reflects the high demand for
this product. However, this strong increase seems only to a small extent driven by a rise
in the number of policyholders. Supply does not seem to be sufficient to keep up with
the demand for cyber insurance. Insurance and reinsurance companies are aware of
the potential systemic impact of cyber risk and the high claims cost related to extreme
cyber-attacks on for instance a large cloud service provider. Therefore, the sector
seems to be hesitant to underwrite new policyholders.
Let us not be too negative today, we must recognise that different initiatives are
emerging which try to close the cyber protection gap. (1) Insurance companies are
starting to adjust cyber insurance policies to exclude the largest risks resulting from
clouds and cover these in a separate 'war' policy, similar to property insurance. The
standard cyber insurance product would therefore have a more manageable risk
allowing the market to grow in these areas. (2) Also, policyholders are creating
solidarity pools amongst themselves to increase underwriting capacity for larger cyber
risks. It is however not clear if these private sector initiatives are sufficient. Ultimately, a
public-private partnership might be necessary in order to help insurers play their vital
role in providing protection to businesses in an economy with ever greater risks
stemming from digitalisation.
Against the backdrop of these initiatives, it remains key to highlight that insurers need to
be vigilant when drawing up the wording of their contracts in order to avoid having to
cover unforeseen losses due to cyber risk (so-called 'silent' cyber risk). The National
Bank of Belgium, together with other supervisors, will continue to follow-up on the state
of the cyber insurance market to assess whether additional policy measures are
necessary.
Let us now turn to the other protection gap, the one related to natural catastrophes. It is
no secret that climate-related extreme events can cause significant economic
disruption. The consequences of natural catastrophes extend far beyond financial
considerations, impacting individuals' livelihoods and the overall stability of our
economies. It suffices to look at what happened in our country and the devastating
impact of the floods in the summer of 2021 in Wallonia.
Natural catastrophes insurance plays a crucial role to mitigate the adverse
macroeconomic impacts of disasters. It accelerates economic recovery by promptly
providing funds for reconstruction and it enhances resilience by better understanding
and assessing climate change risks, promoting also risk reduction and building
resilience measures.
Collaboration between governments, regulators, and the industry, often through
publicprivate partnerships can help close the natural catastrophe protection gap.
Governments can help set-up a comprehensive legal framework to cover natural
catastrophe losses and need to play a role in ensuring sound policy of granting building
permits. Insurers need to ensure a sound pricing system, correctly reflecting the
underlying risks and incentivising risk reduction measures. And, finally, supervisors
within existing mandates can help address catastrophe risks by implementing
climaterelated risk management requirements, emphasizing risk-based pricing and
underwriting for products exposed to natural catastrophes risks. Despite challenges,
overcoming inaction is imperative to prevent further reductions in the availability and
affordability of insurance against natural catastrophes risks.
Let me stop here, so we can kick off our discussions today. Thanks to our impressive
list of speakers, I hope today's colloquium will bring the necessary food-for-thought to
help continue the debate and find solution on closing some of our protection gaps.