With the protection gap affecting the industry at an accelerated rate, organisations are seeing increased risk exposure, an impact on pricing and reinsurance, as well as challenges to the industry’s long-term sustainability.
Reinsurance News recently spoke to EY’s Global Insurance Leader, Isabelle Santenac, about what actions both insurers and reinsurers need to be taking in order to help tackle the widening protection gap.
She explained that there are two key factors that play a pivotal role in reducing the gap.
“You need to protect more and that means you need to have availability of protection in the market and affordability of this protection. Right now, across the industry I think we have a worsening combination of those two.
“There’s the question surrounding the ability for the industry to cover those ways to pay for risks, as well as to fund those risks because they have limited capital. I believe that there are ways of reducing part of the protection, but doing so at an affordable price.
“The industry talks a lot about parametric solutions which potentially could be a way to offer different types of products. This won’t be enough to protect everything, but it can protect part of the risk and help make it more affordable.”
“The second key factor is to work on prevention, which will help reducing the risk and the cost of the damage.”
Moving forward, as artificial intelligence (AI) continues to make an impact across the industry, Santenac explained whether or not she feels that the technology can play a key role in helping to tackle the protection gap.
“With AI you would be able to get more data to precisely model you risk, which means that re/insurers can propose better coverage because they will know how to price it better.
“However, technology can also increase the protection gap too. This is because you will have less risk pooling, due to organisations being able to price on a more granular basis. But the price may be higher and then it all comes back to the affordability.
In addition, another significant way that insurers and reinsurers can help tackle the gap is by collaborating with public agencies to educate and promote sustainable practices.
Santenac went on to explain how important this is for the industry.
“I don’t think people truly understand the risk and the probable scenarios of global warming. A good example is how people are continuing to buy houses in areas where you have more challenges and risks from a climate change perspective.
“The lack of education is concerning. Insurance is expensive if its protecting a property that’s within a high risk area. Places like Florida and California, face extreme weather issues such as hurricanes, earthquakes, and floods and people still don’t understand why their insurance costs so much in those areas.
“There is a need to have more education and certainly a need to engage more with public agencies on this topic. Also developing and proposing new products and systems that can help people realize that if they act and do things differently, there will be different outcomes. This could involve incentives that include building houses with more protective materials so they can withstand extreme weather events.”
