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Policy brief: Insurance regulation for sustainable development

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Insurance regulation for sustainable development

Protecting human rights against climate risk and natural hazards


Climate risks and natural hazards are a growing threat to the basic human rights of life, livelihood and shelter in communities worldwide. In 2013 alone, three times as many people lost their homes to natural disasters than to war, despite it being a devastating year of conflict yet unexceptional for natural disasters (Norwegian Refugee Centre). Environmental trends, together with changing demography and asset growth, will increase future risk levels and projected economic losses. 

Advances in our scientific knowledge and understanding of these risks create responsibilities on authorities to adequately protect populations and their assets against these perils in order to secure their human rights. 

Appropriate regulatory frameworks are required for insurance (both traditional and alternative) to protect people’s basic rights to remain safe from natural hazards. Disruptive insurance regulation or no regulation at all deprives the poorest people in our world from protecting their own lives and assets. Whether through public, private, mutual or co-operative insurance systems, regulation also plays an additional role in enabling sustainable economic and social development and serves as an important pathway to achieving the Sustainable Development Goals. 

The Post-2015 Development Agenda offers a once-in-a-generation opportunity to harness new financial tools for development. In spring 2015 the President of the General Assembly distributed the ‘Zero Draft’ of the Outcome Document for the Third International Conference on Financing for Development, which provides the financial framework for supporting the objectives of the Sustainable Development Goals from 2015 onwards.  

The overall recommendation of this brief is that access to insurance, via its relevant regulation, must be explicit in the commitments of Financing for Development post-2015. 


Key evidence and research 

Both developed and developing countries are affected by natural hazards and associated disasters, of which approximately 70–80 per cent are driven by climate-related risks. Nonetheless, it is the world’s poorest communities and regions that lack resilience and suffer the most as a consequence. Over the past twenty years, disasters induced by natural hazards have affected 4.4 billion people and claimed 1.3 million lives (UNISDR, 2013). 

Effective insurance regulation facilitates access to insurance as an intervention to increase communities’ resilience against climate and natural hazard risks while advancing economic growth, sustainable development and human dignity. 

Natural hazard resilience, at the individual or collective level, cannot be achieved without access to insurance. While access to insurance is determined by a combination of factors, it cannot be attained without adequate regulation to ensure the financial strength of insurance carriers, recognition of insurance contract terms and enforcement of standards. Unsupportive or non-existent regulation exacerbates underinsurance with devastating consequences for populations exposed to natural hazards. 

Duties to protect human rights in the context of natural hazards have been highlighted by the UN General Assembly, the G7 and other bodies. OECD guidelines (June 2014) and other instruments reinforce the responsibilities of business, private and financial sectors to respect and protect human rights. 

In the context of natural hazard risk, insurance systems (operating via public, private or mutual sectors) have the capacity to protect the basic human rights to life, livelihood and shelter in the following ways: 

i) Providing policyholders (individuals, corporates and sovereigns) with financial protection against losses.

ii) Influencing risk reduction and resilience through the conditions and incentives of insurance contracts.

iii) Enabling financial inclusion, access to credit and creating deeper reserves of investment capital at individual and collective levels. 

As documented in our case studies, countries and communities at all stages of development can put in place insurance systems to deliver these benefits, protecting populations against natural hazards and supporting the delivery of the Sustainable Development Goals. 


Case Study: Centre for Agriculture and Rural Development Mutual Benefit Association (CARD MBA) in the Philippines

CARD Mutual Benefit Association started as an informal insurance-like activity until its formalisation in 1999 as an independent entity run by its own members. The initial challenges that CARD MBA faced reflected a generalised problem of overall lack of regulation for microinsurers in the country. Realising the need for effective regulation, the mutual has actively contributed to the negotiations for the several regulatory landmarks that have transformed insurance access in the Philippines. 

Since 2010, a more enabling regulatory environment transformed CARD MBA’s operational capabilities such that it has now over two million microinsurance policyholders, covering around 11 million people in the low-income segment, of which 80 per cent are below the poverty line. CARD MBA captured international attention in the aftermath of Typhoon Haiyan in October 2013 when it began distributing emergency money within hours of the event, and had paid claims to almost 300,000 customers affected by the catastrophe within five days of the event. These household policies were augmented by payments for coverage against death and disability. CARD MBA has also developed a product called the Crop Assistance Programme, which insures crops such as grains, fruit, vegetables and soy against natural hazard risk.

Case Study: African Risk Capacity

ARC is a specialised agency of the African Union, formed in 2012, to improve member states’ capacities to plan, prepare for and respond to extreme weather events and natural disasters. The initial focus has been immediate food security and related livelihood threats from drought. In future, ARC coverage is planned for flood, tropical cyclone and pandemic risks. 

ARC supports poverty alleviation and food security by enabling countries to purchase up to $30m of coverage against failed harvests due to insufficient rainfall at one-in-five-years to one-in-25-years extremes. Using pre-planned interventions refined to reflect specific event conditions, exposed communities are provided with food and cash for work within three months of the drought metric thresholds being triggered. These interventions, and knowledge that these support facilities exist, have a significant bearing on direct poverty alleviation, food security and employment. They enable exposed communities to avoid short-term coping mechanisms with longer term consequences. In February 2015, ARC paid its first claim in the Sahel. Its technical software, Africa RiskView, was able to predict drought conditions that enabled countries to undertake contingency actions for a likely claim. ARC payments were received by countries within one month of the rainfall trigger and before applications for aid had been made to relief agencies through traditional mechanisms.

Recommendations for the Post-2015 Agenda 

We recommend the following as immediate actions:

1. Policymakers should further recognise that effective insurance systems deliver outcomes that are essential to societal resilience, sustainable development and the protection of human rights.

The role of insurance should receive higher emphasis within legislative frameworks, interventions and implementation to deliver on various policy commitments. The insurance sector and financial regulators should engage more openly and actively with the policy community to support these developments.

2. Insurance regulation should become a recognised mechanism for enabling human rights, and human rights should be a guiding principle for insurance regulation.

Policymakers should recognise that the protection of individual and collective capital against climate risk and natural hazards through insurance regulation, and the protection of populations through human rights instruments, are mutually reinforcing.

3. Insurance regulation should be prioritised as an essential policy instrument to protect populations and assets from climate risks and natural hazards via private, public and mutual mechanisms.

This includes provisions, in the post-2015 processes and beyond, to optimise access to effective insurance and related capabilities for individuals, companies and local and national governments. Ineffective or non-existing regulation hinders both insurance access and sustainable development.

4. There should be an emphasis on insurance-related risk education and awareness.

Policymakers, educators and the insurance industry should develop partnerships and programmes to educate communities and companies on natural hazard risks and the role of insurance in enabling resilience, security and sustainable development and investment.

5. Further research should be undertaken to understand the role and relationships between insurance regulation, human rights protections and sustainable development.

This could include the development of complementary risk-based frameworks for human rights protections and sustainable development; the relationship between capital protection and human rights; and the role of insurance as an integrating framework to deliver consistent, compatible and tractable policy outcomes.


Recommendations for the ‘Zero Draft’ of the Outcome Document for the Third International Conference on Financing for Development 

The Zero Draft highlights the importance of tackling environmental challenges, including natural disasters and climate change, within a coherent agenda. This will not be achieved if access to insurance, and its related regulation, is left behind. 

As such, we recommend: 

1. Access to insurance, via its relevant regulation, should be made explicit in the commitments of Financing for Development post-2015. Insurance regulation should be included in the Addis Ababa documents as a specific policy instrument to protect populations and assets from climate risks and natural hazards via private, public and mutual mechanisms.

2. Noting the success of CARD MBA and similar approaches, insurance policy and regulation should be incorporated into commitments to ensure access to formal financial services for all, including the poor, women, rural and marginalised communities and persons with disabilities.

3. Noting the success of ARC and related facilities, access to insurance must be inserted into development programmes to ensure that investments are sustainable and people are protected. Insurance regulation should be included as a mechanism to improve the resilience of LDCs to further increase their attractiveness as recipients of foreign direct investments.

4. Insurance regulation, by enabling access to insurance, should be identified as an effective means to fulfil the human rights duties of state and non-state actors. The Zero Draft directly refers to the need to align business practices with human rights.


The full report will be published shortly and available to download from the CISL website.

About the report

This report was authored by the University of Cambridge Institute for Sustainability Leadership (CISL) Fellow Dr Ana Gonzalez Pelaez and Dr Sebastian von Dahlen, G-AWG Chairman, International Association of Insurance Supervisors, Basel, Switzerland.

The study was further supported by the guidance of an Advisory Group formed by insurance and Post-2015 Development Agenda leaders.

The editorial process was led by Dr Jake Reynolds, CISL Director of Business Platforms and Andrew Voysey, CISL Director, Finance Sector Platforms.

CISL’s Fellowship includes leading academics and expert practitioners who undertake substantive and extensive work with CISL in support of our mission and goals.

CISL is particularly focused on supporting a just transition to a low carbon economy and the role the financial system reform can play in that. In that context, CISL is pleased to convene ClimateWise, which exists to be the global insurance industry’s leadership group to drive action on climate change risk.