For insurers the biggest challenge they face is how to close the protection gap.

It is the gap between the economic loss of an event and the insured loss, and it is the litmus test as to how well insurers  have been able to penetrate their potential customer base.

For decades the protection gap has been focused on emerging economies where rising individual wealth was creating a growing level of financial risks requiring insurance to protect those assets.

However, It came as a surprise that risk managers from the UK and Europe spent a significant amount of time at the Airmic annual conference this week discussing the growing protection gap.

The facts are stark. Risk managers fear that the insurance sector is not keeping pace with the modern and emerging risks that businesses of all sizes now face.

There remains a degree of what can be best described as frustration from risk managers that they are still having to find ways to cover their growing cyber risks with a perceived insurer reluctance to commit the necessary capacity as a lack of claims data impacts appetites.

Artificial intelligence has taken the benefits and risks of technology to a totally new level and coupled with geopolitical risks redrawing global supply chains and a growing interconnection of business risks exposures are now at an unprecedented scale.

The Airmic conference saw the risk management organisation and the International Underwriting Association (IUA) publish a new report around rising risks aggregation and with it the growing protection gap inn large commercial classes.

It is deeply concerning that the businesses which should be bets placed to work with insurers to cover their risks are now finding that increasingly as those risks change that the demand for innovative solutions is not being met.

It is a fundamental threat to the future of the insurance industry. For over a decade insurance leaders have recognised that there are new and emerging risks, Prior to the Covid pandemic there were dire warnings to the insurance sector it needed to change.

Risks were changing and the industry needed to adapt to stay relevant to it clients. If the industry became irrelevant that it would cease to exist.

The pandemic tested business interruption policies and many were found wanting. AI may well test the industry again and the geopolitical risk environment and the pressure placed on global energy resources, let alone the growing impact of climate change.

Underwriters recognise the risks are simply becoming too big to be covered by traditional insurance policies and the talk has moved away from replacement and restoration to resilience. Prevention is better that cure, but in a world where the risks are ever more apparent there is a recognition that prevention is becoming increasingly difficult, so mitigation is becoming ever more important.

Risk managers are looking for new ways to mitigate and transfer their risks, and the captive sector is gaining popularity. If risk managers and major corporations increasingly look to captives and dare I say the capital markets for risk transfer, then the momentum away from insurers may become too strong to reverse.

Insurers have been emphatically told they need to mind the gap, and it is message they would be wise to heed.

Jon Guy, Editor,

Emerging Risks