Climate crisis: FSC says risks for the vulnerable have increased
Climate change has also caused extreme rainfall and flood events..

EVERTON McFarlane, executive director of the Financial Services Commission (FSC), Jamaica, says the need for inclusive insurance is even greater now given heightened exposure to climate risk.

McFarlane, who was keynote speaker at the International Conference on Inclusive Insurance 2022 held in Kingston from 24-28 October 2022, said climate events have increased in occurrence and severity. In the context, levels of insurance coverage in Jamaica were less than optimal, the FSC head said.

At the closing event on Thursday the FSC head said he was encouraged by the commitment of local insurers to designing products for those without access to the financial service, but he also wanted them to be more open in making disclosures to the vulnerable groups who are being targeted.

The International Conference on Inclusive Insurance 2022 took place at Jamaica Pegasus hotel in Kingston, after a two-year delay because of the COVID-19 pandemic. Around 300 experts from more than fifty countries met to discuss and identify ways of accelerating growth and economic viability in inclusive insurance for emerging markets.

Orville Johnson executive director of the Insurance Association of Jamaica.

The conference was hosted by the Munich Re Foundation, the Microinsurance Network, and the Insurance Association of Jamaica (IAJ). In a release from the organisers, Dirk Reinhard, vice-chair of Munich Re Foundation and chairman of the Steering Committee of the ICII 2022, outlined how risk management, including insurance, plays a key role to achieve the sustainable development goals.

Reinhard stated, "Recent floods, droughts and wildfires have shown that climate change threatens the livelihood of billions of people that do not have access to affordable safety nets. Small island states are particularly vulnerable; how to reach scale in small countries will be key.

Katharine Pulvermacher, executive director of the Microinsurance Network, noted, "Insurance has the potential to make a significant and enduring contribution to public policy goals and to closing the global people protection gap. Only a tiny fraction of emerging customers and small-scale producers around the world have insurance of any kind even for smaller, more frequent risks that can have a devastating effect on their economic well-being.

"This presents a clear opportunity for the insurance sector — one that we conservatively estimate to be worth at least US$66 billion per year — increasing as the resilience of the people and producers insured flourishes over time."

Wildfires have become more frequent due to climate change..

Coverage less than optimal

FSC head McFarlane, in his keynote address at the closing event, said he was concerned about the needs of the vulnerable in the population who have unequal access to financial products.

The challenge, he said, "creates significant policy imperatives for regulators to find a solution. We have seen damage in the US of historic proportions, events touching on multiple jurisdictions. We will have to become accustomed to increased geopolitical tensions and increased domestic polarisation. These factors lead to an increased downside for economic growth with higher-price volatility. This will affect the vulnerable to a greater degree", he asserted.

McFarlane said that these are factors to be considered in the design of products to ensure cost effectiveness and an adequate level of coverage. Notably, he said, "In Jamaica about 35 per cent of the workforce has individual life insurance; 38 per cent have health insurance, which is reduced to 27 per cent taking into account dependents."

Katharine Pulvermacher, executive director the Microinsurance Network.

The FSC head stated that, "At a time when we are confronted with increased frequency of health emergencies, including pandemics, the level of penetration is less than optimal."

He noted also that only 30 per cent of residencies are insured,with most linked to mortgages, adding, "Even in motor insurance — which in Jamaica is compulsory by law — coverage is only around 80 per cent.

McFarlane stated, "Clearly in Jamaica there is work for us to do. As a regulator we view our role as supporting and facilitating the work of the private sector in this regard. The design and delivery of products and services and the governance around the marketing of inclusive insurance products is solely the responsibility of the private sector. What we are concerned about is to ensure that there is integrity in the process

"We are concerned about the quality of disclosures made, bearing in mind that the target audience is among the vulnerable and less sophisticated in the market. There is a clear gap, and it is our duty to ensure that the asymmetry is closed."

More frequent droughts have affected sections of the planet due to climate change..

Prudential standards

McFarlane stated that the FSC relied on prudential standards to ensure that insurers "conduct their business in a prudent way and with due regard to issues such as counter terrorism financing issues. We rely on prudential surveillance to oversee how the business is managed".

He said also that with regards to the great level of informality in the Jamaican society the delivery of the microinsurance products without compromising cost and quality was a concern.

The FSC head said that the draft legislation and regulations on microinsurance seek to balance these considerations and promote effective information and marketing materials which are user-friendly and easily understandable.

Sharon Donaldson, president of the Insurance Association of Jamaica.

McFarlane concluded, "My theme is to reiterate the signal importance of inclusive insurance in an emerging market like Jamaica but particularly within the context of the global headwinds that we face at this time. If they persist, it has implications to how we manage reaching those who need these services.

"It is heartening as a regulator to see how our local insurance companies have taken on these challenges. What we can agree on is the need for us to have continuous dialogue and converge towards a situation where the commercial aspect of insurance is being conducted with due respect to prudential and disclosure requirements."

Insurance Association of Jamaica Executive Director Oliver Johnson, speaking at the event, said insurance is purchased by the upper and middle class in Jamaica and that for others the next disaster frequently pushes them further into poverty.

In light of this, he said, more inclusive financial products were being developed. He highlighted the innovation of the tourism insurance pension scheme which includes two major insurance companies which have partnered to deliver the service.

Hurricane Ian battered Cuba and Florida in September 2022 causing historic damage on the US mainland. Climate events are increasing in intensity, creating increasing risk for the vulnerable and

Johnson concluded, "We are very clear about what we ought to do coming out of here — it is not just a talk shop. The minister of finance has indicated that he will give us the [microinsurance] legislation in 2023. The FSC also has been working feverishly to make it happen."

The Ministry of Finance and the Public Service, he said, will hopefully promote it in the region so the microinsurance product can reach scale proportions in the region. Insurers, he noted, already have products in development and expected to roll them out in multiple markets.

President of the IAJ Sharon Donaldson noted that many countries have large informal sectors which face a range of challenges including the death of a breadwinner, precarious traditional livelihoods, compromised food security, and damage to homes and infrastructure due to the climate crisis. Also citing the devastating effects of the novel coronavirus pandemic, which has affected children's education and caused many small businesses to close their doors, she said "many low-income groups are often unaware of steps they can take to protect themselves financially. The insurance industry has a critical role to play to provide innovative insurance and financial products and education geared to these groups" she said.

Dirk Reinhard, vice chair, Munich Re Foundation, based in Germany and chairman of the Steering Committee of the ICII 2022.
Everton McFarlane, executive director of the Financial Services Commision in Jamaica.

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