Closing the global protection gap for natural catastrophes, crop, mortality and health insurance would require $1.8 trillion in insurance premium annually, according to a recent Swiss Re report.
The re/insurer stated that the protection gap has risen by a cumulative 20% in the past five years, reflecting increased demand from economic growth and the effects of inflation.
Though, despite the record-high protection gap, the report found that society’s ability to absorb unexpected financial shocks has improved over the past 10 years, with 57% of the global risks across natural catastrophes, crop, mortality and health now covered by insurance.
Approximately 43% of global risk was unprotected by assets such as insurance in 2022, an improvement from 46% a decade ago.
Jerome Haegeli, Group Chief Economist of Swiss Re, commented, “We’ve seen tectonic shifts in economic policies across the globe as governments have responded to war, a pandemic, and rising inflation.
“Despite the uncertainty and volatility, the world is more resilient today, and insurance is playing a stronger role than it did a decade ago. However, resilience remains 15% weaker than before the Global Financial Crisis and the risk is elevated.
“The inflation-taming monetary tightening process has laid bare financial stability and recession risks, while persistent inflation increases households’ need for more fiscal support to offset their erosion of purchasing power. We expect little improvement in macroeconomic resilience in 2023.”
Haegeli continued, “Insurance helps people absorb financial shocks when they occur. However, building resilience also requires investments into adaptation and mitigation measures to reduce losses in the first place.
“More investment is needed in this area. For example, the development of resilience bonds can attract new sources of capital, while delivering economic benefits.”
Compiled, Swiss Re’s report found that natural catastrophe resilience remained low in 2022, with 76% of global exposures unprotected.
The firm suggested a further $368 billion in future insurance premiums would be required to cover the gap.
Meanwhile, overall health resilience improved in 2022, with 78.3% of protection needs covered by insurance, an increase from 77.5% in 2021.
The change was driven by emerging Asian markets, where health standards have improved over the past five years. The remaining health protection gap stands at $889 billion in insurance premium equivalent.
The protection gap for mortality, in terms of insurance required to fully cover families’ financial needs when a breadwinner passes away, increased slightly in 2022 to 43.4%.
Swiss Re said that this equates to an all-time high of $406 billion in premium equivalent. This increase has been driven by inflation, wage rises and weaker financial markets.
