Public-private programs to address insurance protection gaps must incentivise risk reduction rather than subsidising exposure, a Geneva Association report says.

The think tank warns disaster risks are accelerating faster than societies can adapt, widening protection shortfalls and testing insurance market limits.

Public-private programs are often essential tools, but their design requires navigating fiscal, market, social and operational guard rails, the association’s analysis of 14 schemes shows.

“Public-private insurance programs can’t just be passive shock absorbers that pay out after disaster strikes,” association MD Jad Ariss said.

“To remain viable in a world of escalating risks, they must become resilience engines – reinforcing prevention, strengthening incentives to reduce exposure and helping societies recover faster with less pressure on public budgets.”

Strong design of a public-private program includes ensuring fair access to cover at affordable prices, protecting public finances and making the state a reinsurer of last resort, encouraging private insurance participation and paying claims quickly.

“We recognise that political urgency frequently results in a [public-private insurance partnership] being established before sufficient risk-reduction measures are in place,” the report says. “In such cases, the PPIP should not delay necessary investments.”

Programs analysed include the Australian Reinsurance Pool Corporation’s terrorism and cyclone schemes, New Zealand’s Natural Hazards Commission, Flood Re and Pool Re in the UK, the US National Flood Insurance Program and other schemes in the US, France, Germany, Japan, Turkiye and Spain.

Association public policy and regulation director Helene Schernberg says programs can be complex to design and costly for governments, and policymakers need a structured decision process.

This should include substantiating the protection gap, exhausting risk-reduction measures and enhancements to private insurance markets, defining the exposures that warrant intervention, and making an explicit fiscal case for the residual risk the government is willing to absorb, she says.

The Geneva Association is a think tank for the global insurance and reinsurance industry, drawing its membership from company CEOs.