With re/insurers facing a growing protection gap, they are struggling to demonstrate the value of their products as well as to price them in a way they can provide suitable returns, according to Greg Carter, Managing Director, Analytics EMEA & Asia Pacific at AM Best.
Speaking at the AM Best briefing at the RVS Monte Carlo 2023, Carter commented on one of the major drivers of the protection gap. He said: “People don’t see the value of insurance at the primary level.
“This might be driven by economic conditions, perhaps they cannot afford to buy earthquake insurance for example, and maybe they don’t perceive the value in it. So you can have excess capital in the industry but that capital is not going to be deployed in an area that’s not going to give a sizable return.”
Carter continued: “If you look at California, in terms of earthquake insurance, the penetration rates there are incredibly low, it’s a single digit percentage, less than 10% of homeowners in California buy earthquake insurance, and a lot of them are living on a significant earthquake fault.
“That is one of the broader challenges for the industry, to demonstrate value for products, but also to be able to price a product that provides a service that also leads to suitable returns, which the industry has struggled to do in the last five years.”
Nick Charteris-Black, Managing Director, Market Development, EMEA, also pointed out that products, like earthquake protection, are expensive, but there are so for a reason.
“They’re actually justified rates and for that reason, a lot of the risk goes to the earthquake authority, which is kind of more of a state-based program. So, the take-up rate is sadly below where it needs to be, and that perhaps it is an issue for the industry in terms of increasing the awareness of these products,” he commented.
Adding: “Flood is another example in many countries, it is by far the largest and most terrible peril that they have to contend with. Yet, many insurance buyers don’t realise that their homeowners coverage doesn’t cover a flood type loss.
“These could be areas where microinsurance starts to chip away at that gap, but you have the economic factors, as well as just perhaps the lack of understanding in terms of how important these products are for individuals and businesses to protect their assets.”
