The global insurance protection gap has reached a staggering £1.4 trillion, which is about US$1.8 trillion. This gap reflects the difference between insured and uninsured losses in areas like life, health, natural disasters, and crop insurance. As climate risks increase and economic losses rise, the insurance industry is facing growing pressure to address this issue.
A recent survey conducted by Economist Impact and SAS, involving over 500 insurance executives from 17 countries, revealed that 79% of those surveyed believe the industry has a moral duty to close this gap. The report, titled “Revealing the Paths to 2040,” highlights technology as a key solution. About 76% of executives see it as a significant business opportunity to help reduce the protection gap.
The report also discusses various risks and opportunities for the insurance sector, including the impact of climate change, advancements in data usage, and the rising threats of fraud and cyberattacks. In 2024 alone, natural disasters like wildfires, floods, storms, and earthquakes led to £289 billion in global economic losses, with 60% of these losses uninsured.
Regions most affected by climate change face unique challenges, as insurance remains either too expensive or unavailable. This issue extends to life and health insurance, disproportionately impacting underserved communities. The report warns that climate change will likely worsen these inequalities, particularly affecting vulnerable groups such as children, the elderly, and those with lower incomes.
Sabine VanderLinden, CEO of Alchemy Crew, emphasized the importance of the insurance industry in addressing these pressing issues. She noted that the stakes are higher than ever, as the industry grapples with climate-related losses, fraud, and cyber risks.
Sean Kevelighan, CEO of the Insurance Information Institute, stressed the need for insurers to shift their approach. Instead of merely responding to disasters, they should focus on predicting and preventing future risks. He believes that encouraging consumers to change their behavior and enhancing risk prevention strategies could help close the protection gap over time.
Despite recognizing these challenges, the survey found several obstacles hindering insurers’ ability to respond effectively. Executives cited a lack of understanding of consumer needs (76%), limited awareness of external factors (75%), outdated technology (75%), operational silos (74%), slow innovation (74%), and insufficient resources (73%) as major barriers. Additionally, 77% of respondents identified a lack of public trust as a significant challenge.
Andrew Pollard, an insurance specialist at SAS UK & Ireland, pointed out that public confidence is affected when insurers withdraw from disaster-prone areas or face criticism over data privacy. He urged insurers to act decisively and transparently to rebuild trust and improve their reputation.
The survey also revealed that many insurers view technology as a crucial tool for closing the protection gap. Some organizations are already using advanced tools to reduce insurance costs, while others are developing new products like parametric or microinsurance. Additionally, 32% of firms are leveraging data to improve risk assessment and product design.
VanderLinden concluded that the future of the insurance industry hinges on its ability to embrace AI, data, and new technologies. She emphasized that the sector’s role goes beyond just providing financial coverage; it also includes building trust and ensuring access to protection for underserved communities.