 So good afternoon everybody and welcome to the first panel discussion of this event to mark the launch of the ECB EOPA discussion paper on protection gap. This panel is on the private insurance sector and capital market initiatives to reduce the climate insurance protection gap. My name is Justin Ray, I am the head of the policy department at EOPA and it is my pleasure to moderate this panel and my pleasure also to have been invited to the launch of this important paper. I will say a very few words and then I will pass on to my distinguished panelists. I think one of the good things about this paper was that it requires us to think about what are the benefits as well as the challenges of the protection gap as the sort of unit of analysis as something for consideration. I think it is one of its great benefits is that it requires us to think about insurance in society as a whole, but in the sense that is also one of its challenges. Particularly coming from EOPA as a prudential supervisor, what the protection gap requires you to do is realise that sometimes the solutions are not only restricted to more prudential supervision, that what may be good for an insurer such as raising premiums or withdrawing coverage may be correct from a prudential perspective but are not optimal for society. Demetrius made that point and others have also said the same thing. I think what is also very interesting about the paper is that this ladder of intervention shows that the market cannot always provide effective solutions, though some solutions definitely remain commercial and there was already some discussion about cat bonds. And moreover that the protection gap has wider repercussions certainly beyond insurance for banks as has already been described and a cause for the wider economy, that I thought one of its best insights is not an original insight but I think it is very important to state it that in a situation such as the protection gap the more that you need insurance sometimes the harder it is to provide. Now, let me turn to my distinguished panellists. I will say briefly only who they are rather than introduce them more widely because they will be introducing themselves in a moment. So we have Larissa Dragomir who is deputy head of unit at DG FISMA in the European Commission. Shiguru Arizumi who is the vice commissioner for international affairs of the Japan Financial Services Agency and also chair of the protection gap task force in the International Association of Insurance Supervisors. Jerome Egili who is group chief economist at Swiss Rea and Belinda Story who is managing director at Climate Sigma. What I will ask the panellists to do is to introduce themselves briefly just saying a little bit about who you are but also highlights the interest of you and your organization in addressing the protection gap and whether you have any high level response to the paper. So I will ask each panellist in turn to do this starting with Larissa and then Shiguru, Jerome and Belinda and then there's a few more questions that I will ask and I hope that there's time we will have some questions on the floor. So please, Larissa, let me hand over to you for your introduction that the floor is yours. Many, many thanks Justin and good morning or good evening to the participants. I'm very happy to be part of this panel. I'm honored and I'm sorry not being in the room actually to meet you all in person and to interact with the participants. Justin already told you that I'm working at the European Commission. I'm the deputy head of the insurance and pensions unit and this is a unit inside the commission which is in charge of managing and implementing EU policies that relate to the single market for insurance, reinsurance, occupational and personal pensions, providers and insurance intermediaries. So for those who are not very familiar with the commission, we are a bit the counterpart of EUPA in the European Commission and we are part of the DGFISMA that stands for Financial Stability, Financial Services and Capital Markets Union and DGFISMA has as its mission to preserve financial stability, to protect savers, investors and policy holders, fight financial crime, but also to ensure the flow and access to capital for businesses and consumers in the European Union. So in the context of this mission, DGFISMA pursues especially over the last year the strategy on sustainable finance that has as its aim to facilitate the flow of private capital to support the transition to a climate Israel economy and as you know, insurers and pension funds are among the main, largest institutional investors in Europe. So our unit is very much involved in actually delivering on the sustainable finance strategy at the same time also given the specific role of insurers as providers of risk cover and their expertise in risk management. We also cooperate very closely with several other parts of the commission. We call them directorates general and in relation to climate change, actually we have developed a very close partnership and collaboration with DGFISMA that's a directorate general for climate action who is leading the commission's efforts in fighting climate change and currently actually we are fully involved with DGFISMA in a joint project. We have launched the climate resilience dialogue that explores ways to narrow the climate protection gap. So I'm very grateful to be here today to assist to the launch of this event because the paper, the ideas in the paper, the reactions to it are very important for us to integrate them in our own analysis and build on them and complement reflections and information that we are in the process of gathering. So I'm very much looking forward to the discussions. Thank you so much, Luisa, very clear. So let me turn to Shiguru and let me ask you, well let me thank you of course Shiguru, firstly for attending then let me ask you a question which is in a sense in two parts and one part is what do you consider to be the supervisor's role to address the protection gap and secondly and particularly in light of your role in the IIIS, can you tell us more about the importance of collaboration at international level to address the protection gap. Thank you Shiguru, over to you. Thanks very much Justin. I also apologize for not being able to attend in person, it would have been a great opportunity to get together with European colleagues. I especially enjoyed a very good working relationship with ALPA including the Chair Petra and also Pamela who is the Vice-Chair for the Protection Gap Task Force. So we have been working very constructively in the field of insurance. As you may know the Japan FSA is an integrated regulator so we not only cover insurance but we also work on banking and securities, even fat of issues actually and I oversee mainly G7G20, FSB, IOSCO, IAIS issues and also cross-cutting issues such as sustainable finance as well as digital innovation so that's kind of a portfolio have. The challenge here on protection gap is first of all which protection gap you want to look into and that of course you can discuss in the context of climate in general. Cyber is one of the topics but I think there was a broad consensus and strong support among IAIS members to first take on the natural disaster protection gaps because it's quite clear that the frequency and severity of the natural disaster has been quite increasing and there are also many good cases perhaps in terms of not only supervisor of regulatory implications but also in terms of public and private partnerships so I think that prompted the IAIS to work to begin work on this and formulate as Justin mentioned the protection gap task force which is currently working to put together a report on the protection gap issues hopefully in time for the annual general meeting in Tokyo in November of this year. I also like to make some comments on from a G7 presidency perspective because as you may know we are Japan is the G7 presidency what's the G7 presidency this year I actually had to stay over here because I had to work on the finance ministers and central bank governance communicate as well as the leaders declaration that was just issued over this weekend but as you may know in the G7 finance ministers and central bank governors communicate there's an explicit mention on natural disaster protection gap and I can just read it to you and you may have seen it already it says that given increased frequency and severity of natural disasters that are spated by climate change enhanced coordination by the private and public sectors especially for vulnerable countries is critical in promoting disaster risk finance including insurance in order to narrow protection gaps it also says we also look forward to a report by the IAIS in collaboration with the OECD on how to strengthen economic and financial resilience against natural disaster risks by the end of 2023 so there's a clear mention in the G7 communicate where the ministers and the central bank governors agree that they look forward to further works in this area. Just a few words on the discussion paper published by the ACB and the ILP I think it was I'm very much impressed with the comprehensive approach not only looking through the financial stability lens but more broadly including the social aspects including fiscal fiscal implications and so forth so I think it's a very useful paper that could be I think taken as a reference for many of the advanced countries first of all and I also very much like the concept of the latter approach which which was a conceptual sort of an idea on who does what in terms of narrowing down on the division of labor sort of say between the public sector and the private sector which helps I think would narrow down the protection gap that is in place right now for me in Japan we also have a government reinsurance which was established in 1966 very old scheme and it also has a three tier approach which maybe looks at the private sector then there's a PPP aspect and there's a if you go up through the threshold it's more more public rather than private of course it has a skin in the game so the private sector contributes a small amount in the case of a very large catastrophe but I just wanted to share that with you so let me stop here if that's okay. Thank you very much Shiguru and I think everything that you said was important I think that it is highly relevant that this sort of language of protection gaps and disasters and so on is now in the in the language of the G7 in their communicates and you're also quite right of course to say that I mean we're talking today about the protection gap but once you start looking for these gaps you find them all over the place and the kind of concept of a gap as a unit of analysis is also there in pensions and other parts of insurance and so on so it is everywhere. Let me turn please to Shirom and maybe Shirom if I just ask you to make an introductory statement and then I'll come back to you shortly afterwards with a question but please Shirom the floor is yours. Perfect, well thank you a lot. Thank you for the invitation and maybe a quick presentation to my end in terms of who I am and what do I do? I'm a group chief economist of Swiss three responsible for the economic and insurance market forecasting as well as the research including the Sigma research which is very well known and actually now running in 50 for 55 years. I'm also a board member of the international capital markets association ICMA. I stated because I think it's important in terms of the solution what's out there to reduce the climate insurance protection gap. Maybe briefly to set the stage Swiss three obviously past disease protection gaps are at the center of what we do. We price protection gaps, we try to narrow them obviously with range insurance solutions and we transfer part of them to capital markets. Swiss three is the largest NADCAT range insurance provider globally and we also provide a lot of research on Sigma be it on NADCAT front without NADCAT Sigma or then protection gap without resilience work. Well maybe a few introductory statements on the topic and then also a quick reaction on the paper since you asked for it Justin. So first of all if you look at what is the state of the market what is the state of the market and Justin you mentioned protection gaps they're everywhere no question about that. Not so much thinking about the cyber protection gap definitely thinking about the topic here today the climate protection gap. Fact is that about 75 percent 75 percent of NADCAT losses globally are unprotected and if you look at health protection and the mortality protection gap the other two key perils are actually much larger on the climate front but doesn't mean that we don't need to do more and actually much more on the climate protection gap. I think basically today fact is we don't only have a climate protection gap but we have a resilience protection gap that's why I also very much welcome today's paper but also the collaboration of IOPA and ECB to come up actually with the research report. Now I mentioned 75 percent is the NADCAT protection gap globally maybe more interesting is actually that on a longer term average the annual rate of insured losses on the NADCAT front continues to increase at a steady rate of five to seven percent and five to seven percent that's one number but if you compare it with the annual GDP growth rate of two and a half percent you see the urgency not only is a large protection gap but the protection gap is increasing annually at a quite a large a large rate. Now in terms of the climate risk definitely definitely I view it as a future risk on the economic front not just on the economic front in terms of the future losses for our society and for the livelihood and for the society overall but also in terms of accumulation risk and you've mentioned it before in new introduction statements Justin we have to think about the interrelation of the risks with the banking with real estate with financial market risk and that's why I see very much the risks being non-linear meaning the more we wait in order to tackle them the worse the downside becomes. Now maybe more in terms of the solutions I really think that it's super important and the key that we are able to price first of all climate risk what is the climate risk and pricing climate risk comes with being able to identify approximately and will always remain extremely approximately protection gap that's what you're also trying to do and you have been trying to do for decades and really happy that you come now to the same conclusion that we have been coming which is protection gaps they matter they matter a lot for economic growth so we need to price the climate risk and then we can also manage and transfer the climate risk and I think with any markets it's important that the price of risk is not being distorted and I think actually if you look at the risk of climate not just protection but but just the pricing of the risk if you bear with that with that concept the problem here is that it's being distorted distorted I say that for the number of reasons number one if you look at the pricing instruments it's extolled per metric on average that's the price for metric ton of CO2 according to the latest IMF research six dollar per metric way too low way too low needs to be at least the 75 dollars and second if you look at our research out there in terms of what is needed for green finance and sustainable finance huge investments are needed and actually this is the biggest I think opportunity is also ahead of us to transform the financial markets huge investments annually we forecast estimate that about 270 270 270 trillion dollars are needed by 2050 this is a cumulative number now if you look at the best data out there from ITMA international capital markets association fact is yes green finance and green bond market is growing but it's still only about two percent of the overall bond market capital markets are definitely key insurance companies are definitely key policy action is definitely important to price the risk and regulate the risk accordingly and guide the markets but at the end of the day we need to unlock the potential that exists in capital markets now now with this and I know the abuse of time Justin but we also invited me and the other panel makers to make comments on the paper let me make five short comments number one great paper thanks a lot number two taxonomy I think we need you know the solution for them barriers we need to work further on taxonomies there are too many shades of green and the paper and this discussion is entitled policy options to reduce and for that we need less shades of green second regulation regulation always needs to be market consistent and obviously market consistent if you don't dispute the view and I don't think you do that climate risk is systemic risk and then I just wonder actually what is the path ahead at the G7 but also the European level in terms of the regulatory envelope it needs to be also consistent not just in Europe but also in a G7 context and fourth the PPP model definitely I think it's it's it is a way to go and and you include it also in your paper I think there are more policy options what is the viable model and what does not show if VCP should have a view on that and has a view on that I don't show if I hope I would have a view on that maybe other players in European context like the EIV or European Commission has a view and should have a view and maybe they have and maybe something that can be shared and last but not least and then I stop I mentioned before the capital market is key let me also say we need to have more asset classes when we need to have asset class for sustainable infrastructure that I don't think this is off topic at all because sustainable intro structure instrument goes a long way actually to to make us ready not just to tackle the current protection gap on the climate but the protection gap that exists very much on climate adaptation that's super important as well and that's why we have been calling for a long time to standardize infrastructure that sustainable infrastructure as an asset class and I think that may be something to consider in future iterations of this discussion paper but thank you very much and I stop here. Well thank you very much Jerome and very thought provoking backed up with with lots of facts and figures and let me just say a couple of word and instant response to what you said I mean your your figure that insured losses are increasing by five to seven percent I mean that is that of course is a good is a good reality check I mean we think we've done a great job identifying the protection gap and we now kind of use it but of course we're not solving it and you know that that statistic kind of makes that clear I think that one of the other issues you highlight is the need to do things in an imperfect world so I mean you refer to carbon pricing and if it either not existing or being too low you refer to the need to have sort of an agreed taxonomy throughout throughout the world ideally of course these things are highly desirable but in a sense from a from a practical perspective what can we do even in even in that absence I think that then yeah I think the the paper is is part of that and a model for PPP I mean I again that is something which is which will need to be developed between the open did some work in relation to potential models during the pandemic and you among I think there are four principles that stated and among those is one that is already that is also in this paper the idea of skin in the game and the second that you can have a model but it's not going to cover everything it's not going to cover the whole risk and so you know that it will address it'll address the problem but not the not the entirety of the problem but thank you very much hero man we'll come back to you with some questions later and so let me turn thank you for your patience let me turn to Belinda and thank you for calling in from New Zealand I believe so really yeah we're very grateful that you have made the time for us and again I'll ask you please to make just to make some introductory remarks and then come back to you with with some questions in in a little bit so please Belinda over to you. Kia ora koutou from New Zealand. So I am Managing Director of Climate Sigma which is a small independent research firm is in that role I manage a $10 million five-year research program looking at extreme events in New Zealand and I'm also have recently conducted research on insurance retreat so this is where the insurance protect so the protection gaps becomes significant specifically because of a withdrawal of supply by insurers in terms I've sometimes been described by at least one insurer in New Zealand as extending the Overturn window I am independent I'm not sure that I'll be necessarily to the taste of all the insurance sector on this call but I am independent I also provide my firm provides advice to the Reserve Bank of New Zealand so we've been advising the Reserve Bank on their the physical risk component of their climate stress testing for a number of years I'm on a working group with the New Zealand government with a La Noie looking at drafting legislation to make managed retreat out of these most hazardous locations much more straightforward and I'm interested in particular in this work in terms of how that protection gap is growing when insurers are pulling out and I've got one insight that I had when reading the paper in preparation for this panel which is it's critical to understand how the rate of change is impacting that potential expansion of the protection gap and looking at the ladder I came through the conclusion that policy responses need to be contingent on that rate of change so by rate of change I mean the whether an event for example at the moment that has a return period of a hundred years becomes a return period of 50 years by 2050 which would be a slow rate of change or a rate of change where you go from a one in a hundred year event to say a one in ten year event by 2050 if you've got a faster rate of change that should be something that is taken into account when considering where on the ladder you're comfortable intervening what I would suggest is the slower the rate of change the more comfortable you can be in going lower in the ladder without increasing the long-term risk to life but I'm happy to talk a bit more about that after some follow-up questions later. Thank you very much Belinda and I think you raised two sort of very important things one is this idea of insurer retreat which of course worsens the gap and as I said in my introductory remarks it may be prudentially sensible from the individual from the perspective of an individual undertaking but can have certainly have wider consequences and of course the rate of change here how quickly this is all happening is is going to be one determinant of the of the policy response so thank you panelists for the for some introductory remarks let me ask some questions and Larissa let me please turn to you particularly given given Jerome's view that the protection gap is increasing sort of five to seven percent a year from the commission's perspective what would you say is the degree of urgency in addressing the protection gaps and can you tell us anything about what the commission is is doing thank you thank you climate change is a real phenomenon and the climate protection gap is equally a reality and the dashboard that the Europa has produced is evident in that and Jerome has mentioned it's data science tell us that the frequency and severity of events is being exacerbated by climate change losses are growing the gap is widening so this is really putting under renewed stress the resilience capacity of our society and it's clear that action needs to be taken so it is a priority absolutely for us to identify the measures that may contribute to improving the society's resilience in the face of climate change and the climate protection gap is on our agenda for some time and it's actually discussions are intensifying a lot lately and the idea is really to reach a common understanding of what the climate protection gap entails is and find appropriate solutions so the commission is actually acting on it for some time already but before telling you exactly what we are currently doing about it let me just go back a bit and remind the wider political context and especially the commission's strong commitment to address challenges of climate change as reflected in the European Green Deal that's a commission that the strategy that our commission has put in place immediately after taking office it also demonstrates our strong commitment to the implementation of the Paris Agreement which allow me to remind you Coels for making finance flows consistent with a pathway towards low green gas emissions and climate resilience development so it has both the mitigation and the adaptation side highlighted as regards climate change adaptation the commission has proposed quite ambitious climate targets in for 2030 namely reducing greenhouse emissions gas emissions to at least 50 percent below the levels registered in 1990 the chief is those targets the commission has proposed a package of sectoral policies the so-called fit for 55 package and this is also company accompanied on the financial sector side with a strategy for financing the transition to sustainable economy that I already mentioned in in my introduction and which is managed in in Digi Shisma but the commission is also very attentive to the need for climate resilience and insurance is one tool for the management of climate risks and it is already since 2020 that the commission has extensively actually discussed within the different departments and with outside experts and stakeholders climate protection gap and these discussions have informed climate adaptation strategy that was adopted early 2021 and at the time we also published a staff working document that summarized the thinking that it was at the time I have to say that already in 2020 the insurance industry has shown a great interest in our work and has this has increased since and the company does in our subsequent work what we found is that in 2020 2021 is that the understanding of the climate protection gap was not yet well developed enough and to overcome this and gather more information at the time we the adaptation strategy has expressed strong support actually for IOPA's work on the insurance protection gap for natural catastrophes and it was great really great to see the dashboard being completed by IOPA at the end of last year the dashboard puts put up by IOPA can definitely contribute to a better understanding of insurance protection gaps and it is really becoming the reference point as regards the situation in in the EU but the dashboard also shows that the climate protection gap is large with only one quarter it was already mentioned of total losses caused by extreme weather and climate related events across Europe being covered by insurance since the 1980s so we know that the discussion on how to deal with the protection gap has to continue and we have reached out to many stakeholders we have heard from some insurance insurance for instance that the public policy across the board could provide a better environment for the supply of insurance coverage we have heard from some asset owners that there is lack of understanding on the drivers of insurance premiums we have heard from consumer associations that there is room for raising awareness on policyholders exposures to climate risk and we also listen to researchers and public authorities who highlighted that many problems could be solved if data that insurance insurers currently hold would be used by other parties as well so a lot of stakeholders a lot of perspectives a lot of issues that that were raised and given the the range of this stakeholders affected and the complexity of issues that came to us we saw that the best way forward would be to get the relevant stakeholders together and facilitate and interdisciplinary discussions on ways to tackle the climate protection gap and that's why in our both in our sustainable finance strategy and adaptation strategy we actually called setting up the climate resilience dialogue and I'm happy to say that this is now a reality it has been launched at the end of last year and it's actually fully functioning meeting three times every three weeks since January it is a platform for the exchange of on good practices and on solutions to best address the climate protection gaps it brings together 17 organizations that are quite representative of different stakeholders and actors including insurers, reinsurers, risk managers, public authorities and regions, representatives of consumers but also of the real economy and the dialogue will will work through the various aspects of related climate protection gaps until the summer of 2024 it will produce a report that will include recommendations and best practices it will publish also an interim report in the summer of 2023 that will include the summary of the understanding so far and an outlook for further work and it's only in the second phase that it will look at the solutions and best practices and the final report is likely to be published in the second second quarter of 2024 so we are very much looking forward to see how this dialogue will design the role and value proposition of insurance in further building resilience it is it is currently considering how the insurance industry can better contribute to adaptation especially through underwriting and investment practices so that is one of the main tool that we think might help narrow the climate protection gap on our side we are accompanying basically the dialogue and we really approach it with an open mind without any preconceived notions so we hope this will be developed and result in a much needed collaboration and partnership between the representatives of the private and the public sectors and I'm sure that also today's papers yeah it is discussed in it will will constitute a very good input to to our future work on this. Thank you very much Luisa and yeah an impressive list of list of activities by the Commission and in its own way it reflects actually what has happened in the OPA the shooting up the agenda so quickly of sustainable finance issues in the last in the last few years with a whole plethora of of different initiatives um thank you for the kind words about our dashboard I mean one of the things that shows is the extent of the diversity between EU member states in terms of protection gaps including by particular perils and I think that is um yeah that shows that we are we are sort of dealing with a a multifaceted problem um Shigemu please let me let me turn to you I just want to ask you there's anything more you wanted to say about international work on the protection gap maybe just um anything to add to what you said in your in your first round please you're muted Shigemu can you hear me now we can hear you now great yeah let me mention a bit about what we do in the IIS front and as I mentioned we are currently working on a report at the protection gap task force and as Justin you mentioned at the beginning about the difference of supervisory mandate and I think that was one of the first issues that we had to kind of discuss and find a way to deal with because as you may know um for for some jurisdictions they only have financial stability mandate um so it's it could be a challenge for these authorities to think about um financial literacy or insurance market development for so so they would argue that our scope is narrow so we want to confine discussions as what what we do in terms of financial stability but for others for example for the Japan FSA we have a more broad mandate uh to to provide you know smooth funding for to to promote national economy and so forth so obviously the social aspect is within our lens so we had to have find some kind of a solution to this and what we are currently working on is to try to map out regardless of the mandate to see what what kind of issues we need to look at in the beginning and what sort of use cases or cases could be could be collected from member jurisdictions and see whether that other jurisdictions can learn from what is being done already in other jurisdictions so that is the kind of approach we want to we would we're not confining it to a single kind of mandate in our discussions right now another point that might be useful is uh we we we were kind of trying to get a feel of what the priorities would be for for the member countries and we saw a sort of a difference between advanced economies and developing economies for example developing economies would emphasize would would generally emphasize the importance of financial inclusion or or or trying to or insurance product development because for them it's it's it's not about buying insurance when the catastrophe occurs they would either rely on their family or their relatives or they would rely on the government so it's not it's not customary for them to to purchase insurance to protect themselves so that's one of the things that is quite different perhaps looking from a european perspective on what what we should think about public and private partnership so for developing economies actually financial inclusion could be more important than a thought of a public private partnership so you have to kind of put put that into perspective when you think about reaching out and at the is where we have a broad membership so we need to look into that aspect also not not only the difference of mandates but also the difference in priorities among member jurisdiction so we're looking very carefully on on that aspect another thing that i think several speakers have mentioned already is about the importance about climate adaptation the implication for adaptation and mitigation is also a very important point but here i i think many i think would argue that risk-based premium would be very helpful in that regard and i do agree with that but also if you look from a financial inclusion exclusion perspective if you have a very kind of differentiated premium that could mean a de facto prohibitive prohibited prohibition of providing insurance which in turn would lead to a financial exclusion so here there's a i'm not really sure if if i should call it a trade-off but here you need to look at those dimensions and i think that could also have an impact of public when you think about ppp's because when you think about ppp's there's a general perception from the public sector that well it's okay to differentiate but you need to we need to ensure that uh even if there's public money involved that there she go she go sergeant we've lost you she go she so she go i don't mean to be rude we can't we we cannot hear you did you lose me for a moment we we we know you're back now so anyway so what i wanted to emphasize here that there are challenges between priorities that you need to kind of be mindful uh when you think about uh narrowing down uh the protection gap and one last thing i wanted to mention is i think uh from our ias perspective it's not just about uh ias we need to collaborate as mentioned in the communicate with the oe cd the idf the world bank and other stakeholders in order to have a clear view on what what what the state of play is in terms of the global insurance uh sector uh in in trying to address the protection gap so let me stop here thanks no thank you sugar and i was sorry to make gestures at you but um that we in in the room here we couldn't hear you for about for about a minute but um i think we got the um the main messages and certainly i mean the point you make about mandates is relevant the mandates of different supervisors i mean the opus mandate was amended um by legislation to include sort of reference to sustainable finance i think also the point about financial inclusion others have already mentioned it and this kind of question of um what is the demand what is the kind of potential demand for um for catastrophe insurance um yeah it is relevant here she goes remarks about um risk based pricing um need for adaptation i think lead into a question i'd like to ask you and i'd also like to invite the other panelists if they have something they would like to react to in in in this next question then leave once your room has spoken feel free to intervene and i wanted to talk about um catastrophe insurance policies and how can they be designed to ensure that they encourage adaptation and reduce vulnerability to climate related catastrophes over time please over to you sure thanks a lot and just never like to make four points point on one uh there's no question about it i mean also governments right governments and the local authorities they have a key role to play in taking a longer term view and natural catastrophic risk and having more data out there having more marketing retentions having more role models and how policies could look like including pvp would go a long way but it's also about as mentioned my initial remarks about market consistent regulation of climate risk and increasing resilience also true land use building practices adaptation and general risk reduction which is adaptation a team that that many of my panelists members have also mentioned that's point one point two there's no question about it um insurance and insurance players through katmond or ils they can do a lot they have been doing a lot they have been doing a lot if you just look at the numbers the last three decades fact is actually that the insurance industry has absorbed inflation adjusted inflation adjusted loss burden um that increased by a factor of 10 so it's not inflation that is in that factor of 10 is inflation adjusted meaning insurance industry has done a lot which doesn't mean we don't need to do more we need to do more there's no question about that and i think again going back to the point about pricing risk important that pricing risk is not distorted and is well understood and the way that insurance company or sector would signal at the price of climate risk is to premiums to deductibles and to two payments and i think even if that risk is given that the risk is increasing price of climate risk also increased and that's maybe the best incentives as well to do more on the climate adaptation while keeping protection gap in check and and now we're in protection gaps also but definitely insurance can provide and does provide incentives to use risk and can do more point number three yes no question collaboration between public and private sectors they need to work on a common stated and understood objective and here i think just a new mentioned it no actually Larissa mentioned it when you're being a commission data exchange is important it's important for the long-term insurance of wildfire for example which requires coordination between property owners insurers homebuilds and municipalities and more data we have more transparency we have and more transparency we have the less distorts out the price sequence that leads me to my last point point number four and it's mentioned actually in the report in the report and actually in one month actually we will have the eight year anniversary eight year anniversary of the which i think is important in europe of the five presidents report on the capital market union and that was done on the 22nd of july of june in 2015 was released and you also mentioned why the EU to quote your report why the EU policy initiatives such as the capital markets union could also help to further develop and integrate EU financial and insurance markets i totally agree and again coming back to the capital markets that are necessary to unlock the capital which is around which is looking for return but also needs to be guided i think there was a long way to do more on the capital markets front and in europe capital markets union for climate risk should be financed it can be financed we need to transform our capital market insurance will always pay a key role but let's not forget also the capital markets thank you and thanks if you're home and i i i will ask you a question in a moment belinda to sort of invite any of the other parent you or any of the other panelists if anything you wanted to to say in relation to june's four points shiguru and then and then belinda yeah thanks thanks june i think it was very useful and just one short comment but i do agree that the importance about data collection because obviously for for private sector businesses that's the key in in in proper pricing the appropriate pricing so i agree with that elevated risk management could go either way i think that's a very important too cool either way you might be taking the risk that you should not be taking but also you might be not taking the risk that you should be taking but it could go either way but i think in any case i think it would be very important to try to sharpen the risk management for i think that would be a very important aspect as well so let me stop here after the effects thank you shiguru belinda please so just the comment i'd make is that the under the fundamental underlying cost of insurance is the the probability of the event and the consequence of that event so when there has been perhaps in the near history a lower pricing in cat bonds relative to reinsurance that is as as much being driven by worldwide low in interest rates and attraction of the of that asset for those chasing yield so there needs to be a little bit of a caution assuming that cat bonds can provide the premium at any lower price than a reinsurer could no yes indeed thank you and that that i think is the point also made in the paper that the cat bond market is is potentially susceptible to two changes in interest rates what why we have you belinda let me let me ask you a question and again i would invite the other panelists as they wish to also to to intervene um and building on what Jerome said about pricing risk um to what extent do you think that current uh current insurance models are adequate for incorporating climate change risks uh part of the the significant difficulty that um we face in understanding how um insurance pricing may change in the future is the limitations of the climate models themselves so the climate models are very good at giving you an understanding of what the average climate is going to be in 2050 or 2100 um it's particularly difficult for those models to be able to provide indications of how extreme events are going to change um if i can share one of my fun facts we have a super supercomputer in New Zealand which is sit within one of the research institutes that manage climate research in New Zealand it calculates 1400 trillion calculation calculations per second and yet when they put a um climate model into that that computer it takes that computer one to three months to come up with an answer so that is just how sophisticated these climate models are what that means is the climate um physicists can run those models three or four times a year on those supercomputers which makes it extremely difficult for them to be able to get an understanding about how the tail is changing so while um we have very sophisticated models for understanding about existing risk and how that might be changing incrementally in the next year or two it is particularly difficult to get an understanding about how the extremes are changing and yet the work of my colleague Ilan Noi has shown that it is in the extremes that have by far the most impact from an economic perspective um out of proportion to where they sit in in the distribution so um I think that there is um a much greater need for uh demands to be placed from the financial sector into the into the science community to ask them to consider how better to model those extremes within timeframes that are relevant to financial decision makers not 2100 but within the next two or three decades um the other key piece is that insurers and reinsurers only really need to think out one year to three years on the basis of their their contracts so while the TCFD for example has been pushing the many sectors to be thinking longer and insurers are starting to do that there's no direct financial requirement on insurers to do sophisticated modeling beyond the length of their reinsurance contracts which are about three years yes no thank you that's uh that that's an interesting point um and actually what well while we're having building on what you were saying about the models um what are the what would you say are the data needs to incorporate forward-looking considerations um to it for actuarial evaluation models so I fully support um the call for open source um what I would indicate is that it's not a simple task climate scientists have been building their models to share their data with other climate scientists they are not building those um model outputs to be answering financial questions um and so getting a level of standardization into the research community is a key challenge but I absolutely support um being undertaken um I think there needs to be much more of direct communication between the science community and the financial sector in order to be able to help them understand exactly what sort of outputs are going to be needed a really simple example the ones I've talked about is that climate scientists love to talk about 2100 very few financial models are going to run out to 2100 um and again most of those models are designed for the mean not for the extreme um I think any policy intervention into the insurance market to try and close the insurance gap needs uh whatever form of effective subsidy that um involves whether it's a backstop direct intervention such as vouchers or a public scheme must come with a requirement to share modeling um with the regulators um I'm not suggesting so much the modeling in terms of the hazard themselves because as I mentioned earlier the insurers don't really have modeling out to you know a decade or two but what insurers do have the best understanding of is exposure and vulnerability so if there is government intervention to try and close this gap it needs to come with a expectation on the insurance sector to provide information we're moving from a situation where there is over the last three or so decades we've had an expectation that this argument that it's commercially sensitive is enough to be able prevent sharing of information with regulators I think regulators need to be asking for more particularly if there's a significant issue that we recognize has a major impact on the economy and the state is being asked to step in to help close that gap but I imagine my panelists will have different views on this well yeah Belinda you're doing my job for me um this is maybe where I happily invite the other panelists to to reflect on um well reflect on all that you've said in terms of things like models um risking looking at too much of averages rather than extremes your support for open source data um and the models should be shared with the regulator I mean these are all interesting ideas I'd be again interested if uh any anyone from the panel would like to like to respond yeah I would love to respond a number of topics have been mentioned right first of all um let's be clear about what is thriving economic losses it's not just the extreme events it's actually increasingly and that's based on our sigma uh data it's actually increasingly what we call in the industry and three three has coined that term a secondary apparel which is higher frequency lower severity means not not just the big earthquakes but floods and and wildfires and and the like but that that's that's point one just to be clear that secondary apparels are as important if not even becoming more important than primary apparels and point number two in terms of the models yes absolutely there's no question about that that there will always inherently be limitation about models I would say however that industry um and that's also testimony on the numbers I just provided earlier if you think about that for a second last three decades industry has absorbed an inflation adjusted loss burden that increased by a factor of 10 that wouldn't have been possible if you wouldn't have had improved models that wouldn't have been possible if you wouldn't have had the capital to put at risk and having your own risk management techniques surrounding it and I think over the last a few years industry has also developed much more and needed to do more forward-looking rather than than than backward-looking and point number three in modeling economic losses it's one thing to take it from a climate or cartridge of parallel perspective in estimating the distribution of events and severity it's as important actually to take economic development urbanization into account and we have been seeing that last year and the year before and now with the surge in inflation which is increasing the climate protection gaps modeling and but that's not just new because inflation search but modeling climate also need to model the economy so we need that's why in in in in bigger companies you see concerted efforts in terms of modeling and then when I mentioned in data yes I think there is a there's a case for for sharing more data but I think it goes the data goes not just one way it goes both way because at the end of the day we are living in open market environment and open market environment works if you have more data and if you have more transparency for the pricing of of risks so I will leave it at you thank you no thank you thank you Jerome um okay let me just um turn to ECB colleagues are there any questions in the chat or on the um and any questions being raised by the audience we do have some questions from the chat yes so one is from Charles Lowe from Firmah uh for Belinda but also whoever wants to intervene so thanks a lot for raising the point about insurance retreat is there anything innovative going on in New Zealand or Australia to lure insurers back into the space or is it something that now the government is is facing and therefore taxpayers thank you please Belinda so there's significant discussion um being undertaken um uh at the um government level about potentially providing support in the markets particularly for flooding so we have um the insurance retreat work that I undertook was was initially looking at um the impact of sea level rise but there have been calls by um uh um local um communities and um politicians for looking at bringing in a public scheme um uh some of you may be aware that we've had um a major event in New Zealand which was one of our few national emergencies uh Cyclone Gabriel which caused devastation across a number of different regions um that is something that the the country is currently undertaking in a recovery process and swiss re is providing analysis to the New Zealand government in order to be able to take that so thank you for your contribution on that um at this stage um there are significant discussions being undertaken about what that intervention might be thank you and maybe just I don't know if Shigou or Larissa wanted to add anything to sort of innovative policies being considered um well based on your IIS experience or or in the EU I wanted to very much like um share with Belinda as well what she said because we heard a lot of that in Europe as well in our discussions in the context of our preparatory work the climate resilience dialogue so um data sharing amongst the different data owners in different directions is is crucial basically to improving the models that are going on and um you you were also referring to the idea of standardization and here obviously as a policy maker I I immediately the green light went on but I I would definitely first like to understand what prevents standardization within the sector within the model creators right now is there a need actually for even public intervention on that and also for the open model and the sharing um why isn't it happening within the community of those who own the data no thank you thank you Luisa um Margarita I got the impression that you said that there was there was more than one question please let's have another one quite an active chat so on the topic of reinsurers providing less coverage this year can the 2022 year can be considered a cyclical reinsurance crisis or was it a market failure a structural failure which means a rethinking of insurance framework this is from michelle le petit thank you michelle what a question um shiver can I absolutely well first of all I would see it differently it's not a market failure if uh and I wouldn't judge a market failure whether price is increasing or prices decreasing maybe you have a market failure not having um not having addressed the inflation gap in the first place globally but but anyway um in in terms of coverage of of net cut risk I mean fact is inflation surge and um and also the extraordinary year that we had last year on the net cut front it led to an accumulation of risk it was basically the perfect storm um for for demanding more net cut coverage and others as such after a while of extremely low prices soft prices on net cut front we need to see prices on net cut front increasing and that is what has happening what has been happening now for a year or two I would predict that that environment will continue for a while um a number of reasons one is the inflation uh inflation will come down however low inflation still means higher prices and that also needs to be compensated and second yes sure we had also seen and it was uh commented on we had seen um the frequency and severity of events uh going in in in a direction which almost every year we see new record uh events and um it goes without saying that if you have a on average five to seven percent increase in economic losses from that cut event uh that the direction especially within the current macro environment it means continue to higher price and then maybe last point but long least and this is often forgotten um the fact that the risk free rate has adjusted needs to be welcomed for for all financial market pricing and also for society but what it meant for insurance company is also that the shareholders uh capital and equity uh came under pressure uh higher interest rates means lower shareholder equity and capital um and meaning last year but also this year you have more demand for a number of reasons for net cut coverage meeting um less traditional capital available and I don't see yet the non-traditional ILS market returning to the same extent like the past ILS market complementary it makes a lot of sense um but yes it's also yield um often the investor is motivated not just by the diversification of financial market risk but also increase in in yields and you all know that with the rise in risk free rates and we also have uh more alternatives for investors which should also be welcomed so that's why short message um it's not a re-insurance crisis at all quite the contrary it's a re-insurance repricing which is healthy and needed and I would expect the hard market to continue I stop here thank you no thank you Jerome and the cyclicality of the reinsurance market is certainly something that is uh that that is mentioned in in in the paper I reckon we've got time for one more maybe margarita please yes so there is another question from Anna Madlener founder in residence at marble so we talk a lot about cut models and data sources which at the moment do not appear to be sufficient so she's asking how important is data collection for pricing the risk and can you provide concluding samples of data and models on which your institutions are also working thank you and can I start with you Belinda um so uh to yes there's um data is a significant issue it does depend um in large part on what the um the regularity arrangement that you have within particular countries as an example climate and weather data is less available in New Zealand than it is um in Australia or the um the UK um and it's less of all of those are less available than they are in the US so surprisingly the US actually has the most accessible data and that is because the funding of research requires that the information is made available at a particular time frame um and it's required to be open source if the in the absence of the requirement as a condition of funding of the research it ends up being that the research output is completed but it then has ad hoc mechanisms for sharing that data thank you Belinda anyone else anyone else on the panel like to reflect on the importance of data it looks like I can't tempt you and we have already discussed this um discuss this at length so um look I think we're we're coming towards the end um I mean I won't possibly try to sum up everything that was that was said but um I think it's been a very good discussion with some participants literally from all over the world um I would say that yeah there was certainly a welcome from all quarters to the uh ECB e over paper um the the insured protection gap is a very timely and relevant issue and you know this contribution is is it is very valued that there is an agreement that action is certainly needed I mean Jerome's point that the um that the gap is potentially increasing at between five to seven percent a year so it's great that we identified it's great that we identified policy options for dealing with it but you know the problem is uh is building this is clearly already recognized at at a high level in Shiguru I think mentioned the G7 communicate and Larissa spoke about all the EU initiatives that are taking place on the on the protection gap and related activities um one part of that was in relation to the role of supervisors and their mandates and again Larissa spoke of that as did Shiguru and you know importantly the different supervisors around the world will have different emphases um including on financial inclusion in um in in some developing markets we had a very good discussion of models and data I thought um Belinda's point that yes you can model this stuff but it takes New Zealand's biggest supercomputer one to three months to um to to do so um is relevant as a kind of practical practical constraint um that the models may have a tendency to consider sort of averages rather than extremes and of course particularly in the world of insurers as risk managers it is often the extremes uh which we're which we're interested in but the main shiwo made the counterpoint that um actually sort of there is a lot of insurance activity in relation to the um in relation to the average that it is not just the extreme events but the sort of the first rung on the ladder that is set out in the paper there's also a increasing in activity um and you know there was I think agreement on the crucial role of data and an interesting discussion on um open source and some some illustrations from jurisdictions around the world on the extent of that look I know I haven't covered everything but you know I thought this was a very rich discussion and I really thank um both thank the audience for their questions and for their attention and of course thank my thank my panelists for for their contributions thank you very much