What is a protection gap? In its broadest term, it is where there are economic losses that happen, but for some reason there is no insurance coverage.
At a media briefing during the International Association of Insurance Supervisors (IAIS) Annual Conference, IAIS Secretary General Gerry Cross dived into some reasons behind the gap.
“Perhaps some insurers do not see any risk return, so it is just not something that they take on enough of,” said Mr Cross, in response to Asia Insurance Review’s question on the role the IAIS could play in stopping insurers from leaving high-risk areas.
“Or perhaps the affordability is such that it does not work for the policyholder, the potential customer who suffered the economic loss did not understand their risk profile, or they do not understand or have access to information about how insurance can help them, or trust that insurance will help them when they need it.”
He added, “There is a whole variety of reasons.”
And one of the reasons is an insurer’s balance sheet, Mr Cross pointed.
“But as regulators and supervisors, it is not our job to promote to insurers, or tell them where they should be in business in,” he said.
“Our job is to understand what the potential drivers of the of the protection gap are, how big the gap is and possible solutions.”
And that, Mr Cross stated, is “where it gets really interesting”, because it depends on local circumstances, that range from floods in Bangkok to the landslide in Nepal.
So, what is a potential solution?
According to Mr Cross, the IAIS can work with insurers, regulators and a variety of partners to identify the affordable price of a risk. If it is not affordable, the IAIS can help the parties involved look into risk mitigation efforts, such as flood defences by local authorities, while regulators help with financial literacy training.
Insurers, he continued, can provide products that take mitigation into account.
“That is when you begin to get to solutions,” Mr Cross concluded.
Looking into consumer protection
At the same session, Insurance Authority (IA) Hong Kong CEO Clement Cheung also fielded a query from Asia Insurance Review on what the IA was doing to ensure intermediary conduct in non-regulated referral channels, where self-referrals arrangements in the market may be made, that can undermine fair treatment of customers.
But in terms of what Mr Cheung called “the conduct spectrum”, there are many issues, ranging from embezzlement and fraud, to what he called dark grey areas.
“The referral business is dark grey, and the reason behind it is that it is not strictly illegal,” he explained.
“In fact, referral business still exists in many essential areas. Perhaps a family office is referred to a lawyer and fees are involved, but that fee is paid because general value was added across the chain.”
But, in other areas, the referral business done contains an element of rebate, or regulated activities are carried out through an unlicensed person and procedures are not fully compliant, Mr Cheung continued.
“The IA needs to stop that, because it is our responsibility to ensure customers are not jeopardised,” he said.
To that end, the IA released a series of pamphlets to educate the public, and also introduced what he called “a red line on the referral fee”.
The IA has also brought referral businesses completely under restricted and licensed conditions, and also prosecuted wayward brokers in the industry if they had sufficient evidence.
“This has brought the referral business to a place where it is genuinely functioning in the proper way, to support the industry,” said Mr Cheung.
As a result, he continued, the IA is now “in a year of enforcement”.
“This year, we are looking at cases, and want to show people that we are not just introducing rules; we are enforcing them,” said Mr Cheung.
The IAIS Annual Conference, with the theme ‘Towards better outcomes: Insurance in the age of interconnected risks’, is running from 12 to 13 November 2026, in Hong Kong SAR.