The global protection gap is currently estimated to stand at around $1.4 trillion dollars, and it is still growing, fuelled by a number of inflationary and social factors, said Swiss Re EMEA chief executive of reinsurance and regional president Urs Baertschi.
“The protection gap continues to grow, something that we particularly saw during the pandemic, and from that perspective the (re)insurance industry has a responsibility — as well as an opportunity — to provide more products that are more meaningful to more people in the world,” Baertschi said.
One of the key drivers behind the growing protection gap is climate change, which has led to a stark rise in the frequency and severity of secondary perils.
“Secondary perils have been affecting the EMEA region for some time now, but most recently we’ve experienced them in quite a strong way through extreme events such as floods, hail and wildfires — and they've all come together this year,” he said. “When these events happen, you can also clearly see where the protection gap is, and that is continuing to grow because we keep building closer and closer to areas that are higher in peril.
“What this leads to is clearly an increased need and an increased demand for more insurance protection, and that is not just a trend for EMEA, it’s a global issue.”
Baertschi said that this is leading to a hardening market across many sectors.
We're estimating that 2021 direct insurance premiums will increase by 10% over the pre-pandemic level as a result of these factors.
“When you take a step back and take a look at the natural catastrophe events, not just here in Europe, but also globally, they clearly shine a light on the protection gap, and they also shine a light on increased exposures,” he said. “That clearly increases the need and the demand for insurance protection, but at the same time there’s also the expectation that the pricing needs to be sustainable and appropriate for the risks that are being assumed.
“And with the increased frequency and increased severity of some of these natural catastrophe events, you would expect continued hardening of the policies that are impacted by this. That includes some of the loss-affected accounts, of course, but also more broadly speaking around the whole of the market as well.”
Baertschi added: “We're estimating that 2021 direct insurance premiums will increase by 10% over the pre-pandemic level as a result of these factors.”
New Solutions Needed
Over the last 10 years, some 65% of insured natural catastrophe losses have stemmed from these secondary perils, and Baertschi said this has increased demand for traditional reinsurance solutions, as well as claims management solutions.
“We are really focused on helping our clients with traditional reinsurance capacity and solutions, but we are also thinking about innovative ways in which we can help them on the underwriting and claims management side too,” he said. “So we have a suite of products, whether that's CatNet®, which has some predictive modelling and risk assessment capabilities, or other innovative products such as parametric cover that we're creating together with our clients.”
Beyond this, Baertschi said that Swiss Re works with its clients on a whole range of different issues to help them develop their business offerings and client solutions.
It’s only through that collaboration that we can actually start to close the protection gap as opposed to increasing it.
“We have some very long-standing client relationships that we value very much,” he said. “We engage with our clients, essentially on three levels. One is through the more traditional reinsurance protection, the second is through customised capital support solutions, and the third one is around knowledge and risk knowledge solutions.
“What all of this is ultimately meant to do for our clients is to support their growth, to support their operational efficiency and to support their underwriting experience. Beyond that, we also engage with our clients, of course, on other important social topics, such as sustainability, ESG, inclusion and diversity.”
Collaboration Is Key
Ultimately, however, Baertschi believes that the determining factor in closing the protection gap will come through collaboration across all aspects of the insurance industry.
“It’s only through that collaboration that we can actually start to close the protection gap as opposed to increasing it,” he said. “And there are several different aspects to this — as insurance companies we are risk managers, we're investors, and we're insurers.
“We have all of these tools with which we can actually start making a meaningful change, not only in the products that we provide to our end customers, but also the role that we play around topics such as climate change, and how we're starting to influence what's happening with climate change.”
