When it comes to closing much-discussed protection gaps the insurance and reinsurance industry cannot work alone and must partner with other organisations to help to increase demand for protection, according to James Vickers of Willis Re.
The Willis Re International Chairman told us in an interview that “reinsurance alone cannot help to close the protection gap, since it is only one part of the supply-side dynamic of the protection-gap challenge.”
The global protection gap (disparity between economic and insured losses post-event) is often discussed in the insurance and reinsurance sectors and is viewed by many as one of, if not the greatest challenge and opportunity facing the risk transfer industry.
Parts of the world highly vulnerable to a range of potentially devastating natural catastrophes, such as parts of Asia and Latin America, continue to have some of the lowest insurance penetration levels on earth.
The result of this is that when disaster inevitably strikes, governments and ultimately taxpayers ended up paying for the costs of recovery, which, for poorer regions can be extremely detrimental to the well-being and development of economies and societies.
“It is very encouraging that well-capitalised reinsurers, together with capital markets, have developed techniques to gain access to previously unimaginable amounts of capital, so whilst solutions have been developed to address the capital supply problem, the key issue remains on the demand side,” explained Vickers.
Part of the issue with raising demand for solutions in certain parts of the world relates to a lack of awareness and education around the benefits of protection.
Vickers told Reinsurance News that increasingly, reinsurers are actively supporting ways to increase demand, “be it through partnerships with governments, NGOs, development banks, and other quasi-state organisations.”
Adding, “Many have actively supported new distribution techniques such as micro-insurance to help reach out to previously uninsured individuals and organisations.
“Noble though these efforts are, the reinsurance industry alone cannot solve the protection gap.”
He raises a valid point, and one that highlights how vital collaboration across the public and private sector is to increasing insurance take-up rates in both emerging, and more developed parts of the world.
After all, the U.S. is home to one of the most developed insurance markets in the world, but earthquake coverage in California, and flood take-up in regions prone to flooding, for example, remain dangerously low.
“By being active and enthusiastic supporters and thought leaders, the sector can help to show society more widely how the protection gap can be closed as part of a societal revolution in risk understanding, assessment, mitigation, and transfer,” said Vickers.
An example of this, said Vickers, can be seen with the industry’s support of California’s pending Disaster Insurance Bill, which is designed to leverage risk transfer markets to help fund the economic burden from natural disasters, and in particular wildfires.