IAIS Examines Financial Stability Risks from Natural Catastrophe Protection Gaps

The International Association of Insurance Supervisors (IAIS) has published a special topic edition of its Global Insurance Market Report titled Global Insurance Market Report (GIMAR): Potential Financial Stability Implications of Natural Catastrophe Insurance Protection Gaps. The report explores how natural catastrophe (NatCat) protection gaps—defined as uninsured economic losses from natural disasters—may affect economic resilience and financial stability.

Insurance plays a critical role in absorbing economic losses and supporting recovery after severe NatCat events, yet significant protection gaps persist worldwide. These gaps are driven by factors including uninsurable risks, affordability issues, limited risk awareness, and decisions not to purchase coverage, per the report.

The IAIS found that NatCat events can disrupt economies and financial systems through direct damage and indirect effects such as increased credit risk and reduced investment. Insurance can mitigate these effects, but low coverage levels—particularly in emerging and developing economies—heighten vulnerability, according to the report.

The report highlights that global economic losses from NatCat events have risen due to socioeconomic trends and climate-related weather volatility. In 2024, at least 57 percent of global NatCat economic losses were uninsured, reflecting sizable gaps in catastrophe protection, per IAIS.

The analysis includes six case studies across diverse markets, covering both historical and modeled events. While the events examined did not trigger systemic financial instability, the report notes that future risks could grow if assets become uninsurable and risks shift to the banking sector, according to the report.

Governments and insurers leveraged insurance payouts, reinsurance, and public support programs to absorb losses in past events. However, the IAIS notes that the sustainability of these mechanisms may be challenged by the rising frequency and severity of NatCat events and the concentration of exposures in high-risk regions.

The report outlines the next steps focused on data collection, global coordination, and developing practical tools for policymakers. These efforts include enhancing the IAIS Global Monitoring Exercise, contributing to Financial Stability Board vulnerability assessments, and expanding guidance to help jurisdictions address protection gaps, according to the report.