Moody’s has suggested the global insurance protection gap is widening as economic growth shifts toward underinsured emerging markets, where insurance penetration remains low, and catastrophe losses are increasingly going uninsured.
According to the firm’s report, the protection gap is typically wider in developing economies, where insurance penetration remains low due to limited availability and affordability constraints.
By contrast, it is generally narrower as a share of total losses in advanced economies, where insurance is more widely available, and a larger proportion of households and businesses are able to purchase cover.
However, Moody’s said the picture is more nuanced than a straightforward developed-versus-emerging market divide, with protection gaps varying significantly within countries and across different risk types.
As per the report, they are influenced by factors including insurance penetration, product availability, affordability and the types of assets exposed to risk, resulting in pockets of both high and low insurance coverage across economies.
Moody’s explained, “High levels of uninsured risk are nonetheless common even in highly developed countries. The protection gap associated with the 2014 earthquake in South Napa, California, was estimated at greater than 90% of the total economic loss. This reflected both low take-up of earthquake insurance and relatively high deductibles where protection was in place.
“Similarly, there are pockets of high insurance coverage, and hence, low protection gaps, in less advanced economies. When Hurricane Melissa made landfall in Jamaica in 2025, high levels of insurance coverage among the island’s hotels and larger businesses capped the overall uninsured loss rate at 67%. This compares with close to 100% for homeowners in the worst-affected parishes.”
Moody’s new report also touched on how the protection gap can change quickly within a single region after a major disaster, as such events typically raise risk awareness and encourage greater insurance take-up.
As an example, the rating agency highlighted how the demand for flood insurance has been increasing steadily in Germany because of repeated flood events since the start of the century, including the severe Bernd floods of 2021.
At the same time, a rapid succession of severe catastrophes in the same area can have the opposite effect, as frequent losses raise insurance costs and reduce insurers’ willingness to offer cover.
“This contributed to declining insurance availability in parts of California after the 2017 Tubbs fire and subsequent wildfires,” Moody’s said.
This dynamic is one reason the protection gap is widening, as insurance coverage has stagnated or retreated for certain risks and in some regions.
Moody’s stated, “Higher costs and restrictions have contributed to a decline in insurance take-up rates in California’s highest-risk wildfire zones, for example.
“As private carriers pull back, homeowners are increasingly turning to the Fair Access to Insurance Requirements (FAIR) Plan, California’s insurer of last resort. FAIR has historically set coverage limits that may not fully cover the reconstruction costs of properties in affluent, high-risk areas.”
Concurrently, changes in the regional distribution of catastrophe events are said to have helped widen the protection gap.
The rating agency noted that extreme weather is expanding into regions that have historically had little exposure to it, and where preparedness, including appropriate insurance coverage, is correspondingly low.
Moody’s continued, “In addition, emerging chronic physical climate risks, such as water stress and heatwaves, are causing increasingly large and frequent economic losses but remain largely uncovered by insurance. Around 95% of losses related to the European heatwave of 2025 were uninsured.”
As a result, Moody’s expects the gap between economic and insured catastrophe losses to continue widening even in years without exceptional disaster activity, underscoring the growing challenge for insurers, governments and policyholders.
