Clarence Wong, Chief Economist at Hong Kong domiciled reinsurer Peak Re, has asserted that the economic fallout from the COVID-19 pandemic has served to further widen the protection gap in emerging Asian countries.
The prevalence of under-insurance and non-insurance in emerging markets is well-documented and exists across various different risks, from property to health and mortality, variously also extending to include longevity and liability.
There are many reasons underpinning the large protection gap and low insurance penetration in emerging markets, but they can largely be attributed to lack of accessibility, affordability and awareness, Wong explained.
The gaps are of particular concern in emerging Asia, due to the region’s large population and fast economic growth, with these regions estimated to account for around 40% of the global health and mortality protection gaps, as well as 20% of the nat cat gap.
What’s more, the property and nat cat protection gap is growing as rising asset values outpace the growth of insurance cover, while for health and mortality it is life-style considerations, rising medical inflation and an aging population that are creating an ever-larger coverage shortfall.
Peak Re believes this trend was only aggravated further over the last year as the coronavirus crisis plunged the world into a deep recession.
“The recession hit the poor harder and this segment of the society typically has the biggest protection gaps, particularly in health and mortality,” Wong said. “Their ability to accumulate financial assets and benefit from the stock rally, as observed in the second half of 2020, is also much lower. The pandemic could thus lead to additional sources of inequality while also exacerbating existing ones, for instance in terms of income and education opportunities.”
However, Peak Re now expected emerging Asia, including China, achieve strong GDP growth of 8.3% in 2021, which could help re/insurers improve penetration in these markets.
To this end, Peak Re recommends close collaboration with other stakeholders including the public sector, as government support will likely still be needed to ensure a sustained economic recovery.
“The insurance industry should work with other stakeholders in capacity building and ease any supply-side constraints,” Wong concluded.
“This could include ramping up regional efforts in development alternative risk transfer solution and alternative capacity. The global reset is an opportunity for all stakeholders to reassert their commitment to close the protection gaps, and putting in place action plans to this end.”