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The insurance industry needs to adopt more innovative thinking and forge collaborative partnerships with governments and other service providers if it is to solve the problem of underinsurance, according to a new report from industry think-tank, the Geneva Association.

The Global Insurance Protection Gap report, which builds on Lloyd’s 2012 Global Underinsurance Report and was co-chaired by Lloyd’s CEO Inga Beale, highlights the threat underinsurance poses to economic development and considers ways to measure the gaps that exist in protection and their root causes.

Emerging gap

The insurance industry has a crucial role in helping society manage risks, but considerable regional differences and protection gaps exist, according to Shaun Wang, Deputy Secretary General and Head of Research at the Geneva Association, and co-author of the Global Insurance Protection Gap report.

For example, the magnitude seven earthquake that struck New Zealand in 2010 caused $6.5bn in damage, of which 81% was covered by insurance, according to the International Association of Insurance Supervisors. In contrast, when Haiti was hit by a similarly powerful quake in the same year, less than 1% of the $8bn total damage was covered by insurance.

Natural disasters like the Haiti earthquake highlight the significantgap between economic losses and the amount of damage covered by insurers in emerging countries, according to Wang. In its 2012 Global Underinsurance Report, Lloyd’s identified 17 mostly emerging countries as underinsured, with a total coverage gap of USD168bn.

However, there are also sizable pockets of underinsurance in mature markets, according to Wang. The increasing importance of the digital economy and changing business models have given rise to new vulnerabilities, many of which go uninsured. Insurance penetration has also failed to keep pace with rising property values and the development of areas exposed to storms and floods, such the hurricane exposed US southern and eastern coast, he explains.

Mind the gap

Awareness of the protection gap has been increasing among some national governments, as well as within the insurance industry, according to Wang.

“In the past underinsurance has not really been on the agenda for government, but there is now increasing awareness of the problem as governmentsrealise the implications for business disruption and economic growth,” he says.

Governments increasingly realise that insurance not only helps individuals and businesses get back on their feet after a disaster, it is also a facilitator for economic growth, explains Wang. People are more willing to invest and engage in economic activity when they feel secure and protected, he says.


Closing the protection gap is not just an opportunity for the insurance industry, but a necessity. According to Wang, the industry will become less relevant to society if it fails to become an important part of the solution to managing risks like cyber or natural catastrophes.

“There are a lot of smart people working in the insurance industry but insurers can be conservative by nature and tend to focus on traditional ways of doing things. But they will need to come up with new solutions – new products and ways of distributing them – if they are to close the protection gap,” says Wang.


Innovation also extends to how insurers engage with organisations outside the insurance industry, predicts Wang.

“The insurance industry needs to change its mind-set if it is to tackle underinsurance, but this is not a problem it can address on its own,” says Wang. “To get a breakthrough, the insurance industry will have to work with other parties, like governments and other service providers,” he said.

For example, there is huge potential for insurers in the area of cyber risk, according to Wang, but solutions will require governments and IT security firms to pool their knowledge and resources.

Further research

Both the Lloyd’s and the Geneva Association reports are just the start of a wider push to close the protection gap, according to Wang.

“Building on Lloyd’s 2012 study, our report gives an overall assessment of the protection gap. But the goal is to produce more in-depth analysis in the areas identified in the report, such as natural catastrophe risk in Asia, flood insurance and cyber insurance,” says Wang.

Risks like cyber and flooding are high on the agenda of governments and are identified in the report as potential areas that could see the insurance industry playing a much bigger role in the future, he adds.