A global insurance protection gap of $163bn (£126bn) threatens the livelihoods of millions of people across the world, with poorer countries some of the most at risk.
That is the latest warning from Lloyd’s of London, which found that around $160bn of assets in emerging economies remain underinsured – accounting for 96% of the total global insurance gap. According to the global underinsurance report, despite the general global economic growth in recent years, the insurance gap is hardly closing. The global underinsurance gap is now down by over 3 percent since 2012 when it stood at $168 billion.
Underinsurance is the gap between the level of insurance in place to cover global risks and the actual cost to businesses and governments of rebuilding and recovering from major catastrophes.
This report also includes all the latest non-life underinsurance and insurance penetration data for natural catastrophes for 43 countries across the globe.
Despite being among the most exposed to climate change, countries including India, Bangladesh, Vietnam, Nigeria and the Philippines all have insurance penetration rates of less than 1%. China has the largest gap at $76bn, largely thanks to the size of its economy and a relatively infant insurance market, followed by India on $27bn and Indonesia on $14.6bn. This comes after a recent tsunami claimed the lives of more than 1,000 people in Indonesia, with Lloyd’s estimating global economic losses of $165bn from natural disasters this year.
“Insurance is a major contributor to disaster recovery, often providing the quickest crisis relief available,” Lloyd’s chairman, Bruce Carnegie-Brown, said.
“The terrible earthquake and tsunami disaster on the Indonesian island of Sulawesi underlines the important role insurance can play by increasing financial liquidity in catastrophe affected areas.”
Bangladesh is currently the most underinsured country relative to GDP at 2.1%, and also has the highest expected annual losses from natural disasters.
This is despite studies by the OECD and the UK Government Office for Science indicating that the benefits of greater resilience investment outweigh the costs fourfold.
The Centre for Global Protection has since outlined how insurance-linked loan packages, resilience bonds, resilience impact bonds, and resilience service companies could help boost investment.
Lloyd’s Risk Management Solutions global managing director, Daniel Stander, said: “The objective is to reduce initial costs of building resiliently and to finance the residual risk.
“In this way the benefits of insurance can be enjoyed by those who need it most.”