Charles Whitmore, Managing Director
On a global basis, approximately 70 (1) percent of the economic loss caused by natural catastrophe events is not covered by insurance. This gap, the cost of uninsured events, frequently falls on governments through disaster relief, welfare payments and infrastructure repair and rebuilding. The ultimate cost of these responses causes a strain on public balance sheets and an increase in public debt, ultimately burdening taxpayers. The protection gap is increasing in emerging economies especially where the amount of natural catastrophe economic loss covered by insurance dropped from 25 percent in 2002 to approximately eight percent in 2014.
The global protection gap may be caused by:
- low insurance penetration rates (prevalent even in advanced markets);
- losses from risks beyond the limits of insurability; and
- losses from emerging risks and unknown exposures, such as cyber or solar storms.
Scientific opinion supports the role of climate change as one of the generally accepted reasons for the increase in weather volatility in recent years. As this trend is expected to continue in the future, the need for the insurance industry to assist society in recovering swiftly and sustainably in the post-loss environment continues to increase. The industry as a whole can also play a crucial role in incentivizing and implementing improved and sustained societal resilience through considered loss mitigation and risk management measures, which can be established at the point of contact with new and existing policyholders.
Recent Loss Activity
As mentioned earlier, there are significant regional differences in the sizes of the protection gap among regions of the world.
1. Swiss Re, Sigma.