The natural disaster protection gap is widening rapidly, now reaching $180 billion, according to a recent report from Zurich’s chief strategy officer, Paolo Mantero. This alarming increase of 65% over the past five years is largely attributed to the impacts of climate change. Mantero shared these insights during a keynote address at the Insurtech Insights Europe conference in London.
Mantero highlighted that climate change is causing natural disasters to become more frequent and severe, affecting both rich and poor countries. This has significant economic and social consequences. He noted that, over the last five years, the insurance market has only been able to cover 65% of the total risk from natural catastrophes. This is particularly striking when compared to the overall economy, which has only grown by 25% during the same period.
The growing protection gap is not just a number; it has real-world implications. Mantero pointed out that high population growth in areas prone to disasters, like Florida, exacerbates the issue. For instance, Hurricane Ian caused extensive flooding and damage in 2022, coinciding with Florida being the fastest-growing state in the U.S. with a 1.9% increase in population from 2021 to 2022.
Mantero emphasized that the failure to address this gap has broader economic effects. Companies struggling to recover from disasters may divert resources from growth and innovation. This can lead to instability in financial markets and increase the likelihood of recessions and financial crises.
At the conference, discussions also turned to how technology, particularly artificial intelligence, could help close the protection gap. Mantero suggested that innovations like AI and satellite imagery could improve the prediction and assessment of disaster risks. He mentioned that alternative insurance models, such as parametric insurance, could provide quicker payouts, while advanced forecasting could offer earlier warnings for hurricanes and floods.
Mantero expressed optimism about the potential of technology, stating, "We are just at the beginning of what technology can do. AI will certainly boost our capabilities many times over."
The growing protection gap in natural disasters is a pressing issue that calls for immediate attention and action from governments, businesses, and individuals alike. As climate change continues to affect our world, finding solutions will be crucial for safeguarding communities and economies.