The difference between economic and insured losses caused by a natural catastrophe — the "protection gap" — illustrates both society's need for protection and (re)insurers' potential for growth. Examination of economic and insured losses reveals how wide the protection gap is and how sizable losses are for societies after a catastrophe, which can inform risk mitigation, public risk financing, and emergency management to enhance global resilience and better prepare society for the ultimate costs. However, this cost is ultimately borne by both governments and individuals, and continually threatens the resilience and economic well-being of developing nations. Even in the United States, where insurance penetration is typically high, flood and earthquake risk are severely underinsured. For regions and perils covered by catastrophe models, the protection gap represents not only potential business growth opportunities but also a responsibility to act. In the 2019 edition of our Global Modeled Catastrophe Losses report, we examine extreme catastrophe risk from a global perspective. |

Findings from AIR's 2019 Global Modeled Cat Losses report

We estimate that on an annual average basis, catastrophes around the world are expected to cost approximately $92 billion in insured losses, which represents less than half of the total insurable losses. The 1% aggregate exceedance probability insured loss (or the 100-year return period loss) is nearly $288 billion, which is more than double the record losses seen in 2017 from Hurricanes Harvey, Irma, and Maria, California wildfires, and other natural catastrophes. For the insurance industry, the protection gap can spur innovation in product development. While the protection gap is often thought of as a problem confined to the developing world, the two earthquakes that struck Southern California in the first week of July 2019 — only 34 hours and less than 7 miles apart — highlight the fact that this issue can affect nations with highly developed insurance markets; statewide, only about 15% of California homeowners have earthquake insurance. In the public sector, governments are recognizing the importance of moving from reactive to proactive risk management, especially in countries where a risk transfer system is not well established. The cyclones in Mozambique illustrate the difference between a storm with the intensity of a major hurricane making landfall in a country with less than 2% insurance penetration (despite 22.7% growth in 2017) and one that makes landfall in a well-developed insurance market such as when Typhoon Jebi struck Japan. |

Tackling the protection gap

Understanding the protection gap can help governments assess the risks to their citizens and critical infrastructure, and develop risk-informed emergency management, hazard mitigation, and public risk financing strategies to enhance global resilience and reduce the ultimate costs. While the global insurance industry continues to shine a light on the protection gap, our analyses indicate there's still work to be done to address the disparity between economic and insured losses. With the modeled average annual loss at less than a quarter of the global economic estimate, we're not seeing a significant narrowing trend. History has shown that higher insurance take-up allows society to recover more quickly from extreme events, and AIR will continue to work with the insurance and reinsurance industry, businesses, governments, and non-governmental organizations to help reduce the protection gap. Download the 2019 Global Modeled Catastrophe Losses report here. Rob Newbold is executive vice president at catastrophe modeling firm AIR Worldwide and is a member of NU PC360 Editorial Advisory Baord. He can be reached at [email protected]. See also: |

• Young adults see climate change affecting them, support more solutions
• Hurricane Dorian, fires to cause double-digit insurance rate hikes
• Intensifying weather events are driving higher losses for insurers