An expert panel has recommended that India develops its own insurance-linked securities (ILS) regulatory regime through its International Financial Services Centres Authority (IFSCA), which would include exploring the issuance of instruments such as catastrophe bonds.The panel, the Working Group (WG), which consists of industry experts, particularly within Alternative Risk Transfer (ART) arrangements, has published a report that explains how the IFSCA can play a crucial role towards making India a hub for catastrophe bonds, particularly as climate risk continues to intensify and the global ILS market seeks geographic diversification.However, as the panel notes, this will require strategic regulatory reforms, investments being made within risk modeling, and strong collaborations between the government, private sector, and international partners.Researchers from the Working Group have spotted the success countries including Singapore and Hong Kong have had, in establishing an ILS regulatory regime, and how developing financial instruments such as catastrophe bonds have helped those countries combat climate risk.

“Amid a growing trend of catastrophic events driven by climate change and urbanization, the global issuance of Insurance-Linked Securities (ILS) has increased significantly in recent years,” the report reads.“However, the risk exposure of these instruments remains largely concentrated in the United States and Europe, with only a few exceptions, such as cases in Japan, New Zealand, and select World Bank-backed projects,” the report continued.Furthermore, the panel also recommends that under the regime, the IFSCA would consider adding a new class of insurance business, namely special purpose insurer (SPI), under its purview and develop rules for how it can take on insurance risk from other insurers or reinsurers, and then issue ILS to investors to collateralize the risk acquired.

As the Working Group highlights, India is highly prone to floods, cyclones, droughts, and earthquakes, which makes the country relevant for risk transfer with catastrophe bonds.It is important to highlight that the insurance market in India is continuing to expand, with a noticeable increase in regulatory emphasis on climate resilience and financial innovation.It’s particularly encouraging to see another country looking to make ILS available to its local insurance and reinsurance market, as well as recognising the potential to attract international investor capital to support the growth and efficiency of its own marketplace..

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