The global insurance industry still has a long way to go to close the gap between insured and economic losses, despite a wide range of efforts to bring cover to those that lack it.
But although progress has been slow, those involved say the foundations built give cause for optimism about narrowing the rift in the future.
Those involved in closing the protection gap had "a mountain to climb," said Rowan Douglas, CEO of the capital, science and policy practice at broking group Willis Towers Watson PLC.
"There is an enormous amount of work to do," he said. "This isn't just an economic and financial issue for the industry; this is literally protecting people's lives, livelihoods, shelter and key assets."
Daniel Clarke, director of the U.K. government's Centre for Disaster Protection, said in an interview that there has been "a lot of progress and a lot of innovation" and that some countries had "really boosted insurance markets for the most vulnerable." But he added: "There is still much, much further to go."
The Swiss Re Institute, Swiss Re AG's research arm, estimates that the combined global protection gap was a record $1.2 trillion in 2018 premium-equivalent terms across natural catastrophe, mortality and healthcare, more than double its level in 2000.
The biggest gap in dollar terms, according to Swiss Re, is the $616 billion health insurance gap, compared with $222 billion for natural catastrophe. But, according to Swiss Re's insurance resilience indices, natural catastrophe risk has the lowest level of coverage in percentage terms, at 24% globally.
Protection gaps exist in both emerging and developed markets — Swiss Re estimates the catastrophe risk coverage level is 35% in advanced economies versus 6% in emerging economies — but they are far more pronounced in emerging economies.
"[Emerging economies] are most vulnerable to climate change and the most at risk of having the development gains that have been hard won be lost because of extreme weather events," said Wynne Lawrence, a senior associate at law firm Clyde & Co.
Cover for natural disasters in emerging markets has been the focus of much of insurers' and governments' combined efforts to tackle the protection gap. Prominent global initiatives include the Insurance Development Forum, an insurance industry-led public-private partnership launched in 2016, and the 70-member InsuResilience Global Partnership for Climate and Disaster Risk Finance and Insurance Solutions, launched in 2017.
A more recent example is the Natural Disaster Fund Deutschland, launched Dec. 9 by parametric insurance provider Global Parametrics, the German Federal Ministry for Economic Cooperation and Development, Germany's KfW development bank and reinsurer Hannover Re.
A recurring theme in protection gap solutions is insurance with parametric triggers, where factors such as recorded wind speeds, rather than actual incurred losses, determine payouts. These have proved popular because, instead of having to wait for losses to be assessed before payments can be made, money starts flowing when the trigger is hit, allowing countries and individuals to rebuild more quickly.
"The insurance industry is doing a lot," said Clarke at the Centre for Disaster Protection. "They are out and about and they are talking to the different actors that they should be talking to."
But the efforts made to date do not go far enough for some. Ernst Rauch, chief climate and geo scientist at Munich Re Co., said via email that although there had been "positive developments" in recent years, "it hasn't brought the topic up to the necessary speed."
The reason, according to Rauch, is "stagnation" in less developed countries, which "hasn't been resolved so far." He noted that while the protection gap has reduced in high-income countries over the past 40 years, in poorer countries the share of uninsured risk remained "almost unchanged" at more than 90%.
Rauch said the barriers to progress in emerging and developing countries including "a lack of understanding how private-public risk management cooperations can improve resilience" as well as the "political challenges" of financing risk transfer solutions triggered by methods other than actual losses.
Martin Bertogg, head of catastrophe perils at Swiss Re, said in an interview that there was a general mentality among public bodies to effectively self-insure disasters and seek funding after an event, and that while the industry has had a few successes in trying to change this, it is still "early days" and that "the general notion that 'we pay for it once it happens' prevails."
For private individuals and small businesses, Bertogg said the problem was no longer a lack of insurance products but rather insurance buyers' risk awareness and their desire to manage that risk. Some individuals, he noted, may be more likely to prioritize a new phone over buying insurance to protect themselves from a remote risk of financial ruin.
"The industry, I think, has just not made a good case yet — not made the products attractive enough that people start to focus around" the value of insurance, he said.
Scaling the mountain
Despite the setbacks there is a sense of optimism that insurers, in partnership with governments, can close the protection gap. Lawrence at Clyde & Co said the industry was "on its way," adding: "There seems to be momentum building now, and I think the Insurance Development Forum has a lot to do with that."
Douglas at Willis Towers Watson said the fact that governments and the insurance industry have been working together on various projects bodes well.
"You are getting a growing number of senior professionals in the public and private sector who are spending more and more time working together and understanding each other's worlds," he said.
Closing the protection gap may be like scaling a mountain for insurers and governments, but Douglas said base camp had been established, and although the industry and governments might not reach the summit during the next 10 years, "I really think that collectively we will get to within sight of the peak."