Regulators across the world need to collaborate more effectively to smooth the way for global reinsurers to close the so-called protection gap, according to International Underwriting Association CEO Dave Matcham.
The protection gap refers to the difference between economic losses and insured losses caused by natural catastrophes and other large events. In 2017, one of the heaviest years on record for catastrophes, there was a €193 billion difference between insured and economic losses from disasters, according to Swiss Re.
Protection gaps are most closely associated with emerging economies that have low take-up rates for insurance, but they also exist in developed, heavily insured countries, including the U.S.
Speaking to journalists following the release of the International Underwriting Association's annual statistical report, Matcham said he would like to see regulators "work together better for the sake of their own economies to somehow enable the cross-border selling of reinsurance to some of these countries" to close the protection gap.
Matcham said global reinsurers are equipped with both the financial capacity and the products to close the gap, but that they are beset by "regulatory barriers" in some countries that prevent them from helping. Without reinsurers' assistance, he explained, the countries have to pay for the damage themselves.
"That doesn't seem right to me," Matcham said. He added that he sees the regulatory obstacles as "quite protectionist" and criticized them as unsound policy from an economic perspective.
The global reinsurance industry is suffering from overcapacity, which has prompted suggestions that it could deploy some of its excess capacity in closing the protection gap. There are several initiatives underway to close the gap, including the Insurance Development Forum, a public-private partnership led by the insurance industry.
Matcham said "very senior levels of the reinsurance industry" are involved in the discussion about closing the protection gap, adding that there is a "huge opportunity" for the industry to provide solutions to address the problem.