Page 92 - India Insurance Report 2023- BIMTECH

80 India Insurance Report - Series II

has access to insurance. They can play a crucial role in nudging the insurance operators to develop
products for the mass market and distribute them using new technology-based channels.

From a policy perspective, governments should also work towards enhancing insurance awareness.
Community-based risk-sharing arrangements have successfully filled a small protection gap during the
pandemic. The regulators and the governments can possibly look at re-introducing these age-old systems
to manage risk and extend coverage to all.
It is important to understand that insurance should only be purchased to manage residual risks. This
means that individuals need to first reduce and manage their risks by taking adequate loss prevention
and risk reduction measures and buying insurance only for specific risks that cannot be managed effectively.
For residual risks to be acknowledged and accepted, there has to be awareness about risk reduction
activities. Some common risk reduction mechanisms are security measures, policy enforcement, employee
education and awareness, and financial and legal positioning.

These cultures need to be gradually built in. Once the cultural aspect is taken care of, the risks that
cannot be controlled or managed can be transferred via insurance to offset uncertainty. Insurance is not
a panacea but one of the tools to manage risk. Governments should partner with private insurance
players to develop awareness around these subjects among the general public.

9. Long-Term Investments

The success of the Paris Agreement hinges on mobilizing significant private investment from the
world’s institutional investors - including the insurance industry and into infrastructure that is low-
carbon and climate-resilient.

Sustainable infrastructure offers an attractive investment opportunity for life insurers and pension
funds because it can deliver predictable and stable cash flows that match insurers’ long-term liabilities
while also generating an illiquidity premium. As underwriters, insurers are also well-positioned to
understand climate risks and the advantages of investing in infrastructure that is low-carbon and resilient
to climate change. The complementarity of these two activities makes insurers exceptionally well-
positioned to lead the way in investments in resilient infrastructure.
Targeted investment in resilient infrastructure reduces the potential underwriting losses for non-life
insurers from storm surges, flooding, heat stress, and other climate factors and could lead to lower
premiums for policyholders, creating a virtuous cycle of price incentives for investing in prevention and
preparedness. Greater resilience reduces risk, which is then reflected in lower insurance premiums,
providing a strong financial incentive to make suitable investments. This, with careful design, insurance,
and investments, can be mutually reinforcing.

In addition to these risks, insurers have their own set of more specific challenges to overcome. These
challenges include aligning investments with their long-term liabilities, complying with risk-based
regulatory frameworks that assign high capital charges for infrastructure investments, especially for
unrated projects, which are the most common, and building their internal expertise and capacity to
invest in infrastructure. Most importantly, they include finding projects of sufficient size and quality to