Insurance uptake for emerging risks continues to rise

Closing global protection gaps for natural catastrophes, crop, mortality and health insurance would require close to $2 trillion in insurance premium annually – a record high, according to a new report by Swiss Re.

The 5th resilience sigma report: Restoring resilience: The need to reload shock-absorbing capacity suggests that this protection gap has risen by a cumulative 20% in the past five years, reflecting increased demand from economic growth and the effects of inflation.

Despite the record-high protection gap, the report finds that society’s ability to absorb unexpected financial shocks has improved over the past 10 years, with 57% of the global risks across natural catastrophes, crop, mortality and health now covered by insurance. This represents an increase of three percentage points from 2012.

This year’s report introduces a new indicator of resilience for food security: the extent of underinsurance in global crop production. According to this measure, 60% of the world’s crop production is uninsured, with the protection gap greatest in emerging Asia. Closing the gap for crop insurance would require USD 113 billion in insurance premium per year.

Jerome Haegeli, (pic) group chief economist of Swiss Re, commented: “We’ve seen tectonic shifts in economic policies across the globe as governments have responded to war, a pandemic, and rising inflation. Despite the uncertainty and volatility, the world is more resilient today, and insurance is playing a stronger role than it did a decade ago.”

“However, resilience remains 15% weaker than before the Global Financial Crisis and the risk is elevated. The inflation-taming monetary tightening process has laid bare financial stability and recession risks, while persistent inflation increases households’ need for more fiscal support to offset their erosion of purchasing power. We expect little improvement in macroeconomic resilience in 2023.”

Haegeli added: “Insurance helps people absorb financial shocks when they occur. However, building resilience also requires investments into adaptation and mitigation measures to reduce losses in the first place. More investment is needed in this area. For example, the development of resilience bonds can attract new sources of capital, while delivering economic benefits.”

Alongside the new crop resilience measure, the report provides updates for 2022 on overall global economic resilience, health insurance, mortality and natural catastrophe lines.

Key findings: 

  • Overall global resilience improved over the past 10 years, primarily due to gains in crop, natural catastrophe and health resilience – for which available protection is rising faster than the total protection need.
  • Approximately 43% of global risk was unprotected by assets such as insurance in 2022, an improvement from 46% a decade ago.
  • The global protection gap is still widening, standing at an estimated all-time high of USD 1.8 trillion in premium equivalent in 2022, far above the comparable $1.5 trillion in premium equivalent in 2018.
  • Overall health resilience improved in 2022, with 78.3% of protection needs covered by insurance, an increase from 77.5% in 2021. The change was driven by emerging Asian markets, where health standards have improved over the past five years. The remaining health protection gap stands at $889 billion in insurance premium equivalent.
  •  Natural catastrophe resilience remained low in 2022, with 76% of global exposures unprotected. A further $368 billion in future insurance premiums would be required to cover the gap.
  • Emerging markets require an estimated total of $100 billion in investments per year this decade into resilient infrastructure, real estate, and agriculture to adapt to natural catastrophes.