Swiss Re, one of the world’s largest reinsurance companies, is passionate about closing the protection gap, and although much of the architecture is in place, progress has been frustratingly slow, according to Chief Executive Officer (CEO), Christian Mumenthaler.
As the gap continues to widen in many parts of the world, Swiss Re’s Mumenthaler explains that it’s a key goal for the industry, and while positive steps have been taken and innovation and technology holds promise, progress is hindered by a big psychological hurdle.
Globally, there’s a protection gap of more than 50%, so there’s a lot of catastrophes that happen that are not covered by insurance. Research shows that if they’re not covered, economic recovery is much slower.
“Now, the protection gap comes from different places. So, there’s places in the world where people cannot afford insurance, and there the role of government is really important and innovation, technology, etc. And we’re making some progress there,” said Mumenthaler, in a recent interview with Artemis.
“But in the developed world, so-called developed world, there’s still a huge protection gap, even though people could pay the premium. It’s affordable, but they choose not to pay it. And the reasons for that are more psychological. A lot of people maybe hope the state would come in or they hope it wouldn’t happen to them, etc.
“The act of buying insurance, as seen by behavioural scientists, is actually a very difficult act for the human brain – to think about the future, to think about the negative. So, there’s a big hurdle,” he added.
Mumenthaler explained that whatever Swiss Re and other industry players do, the reality is that the gap persists and unfortunately, the only way to close the gap, in many instances, is for the state to get involved and force some minimum level of insurance.
“And so, yes, lowering prices, become more efficient might help, but since the actual issue is more how we function, a psychological issue, I think it’s going to be hard to close the protection gap just based on efficient pricing. I think it’s impossible,” said Mumenthaler.
In terms of the progress that has been made, the CEO suggested that much of this has come from Swiss Re and the wider industry engaging with governments in poorer countries.
“We have been working for more than 10 years and we have a special unit that is actually interacting with governments, helping them to build some risk model, understanding of the risk, or with institutions that are helping them to build some of the risk knowledge that’s necessary. And there’s now a significant amount of governments across the world that also protect themselves through us, through other reinsurers, through capital markets.
“So, there have been some significant improvements there, and several of those have paid out, they’ve actually proven their value. So, I think that’s one angle to close the protection gap, where the government plays a role which is more the emerging type economies, typically,” he said.
Mumenthaler also highlighted the importance of the capital markets and the work Swiss Re has done to develop innovative solutions and instruments to attract different types of investors.
“So, we’re constantly innovating and so do other players, what we can offer to specific investors for their particular needs. I think this will attract more professional investors over time to this market and will help us with some of these peak perils in particular, where it makes a lot of sense,” he said.
“So, I think a lot of the architecture is in place, but the progress overall on closing the protection gap has been frustratingly slow,” added Mumenthaler.