An estimated $163 billion of assets are underinsured in the world today, leaving an exposure gap that poses a significant threat to livelihoods and global prosperity, according to new research from Lloyd’s and the Centre for Economics and Business Research (CEBR).
The average insurance penetration rate (total insurance premiums as a percentage of GDP) in developed nations is twice as high as the average in emerging, or lower income countries, which account for almost all ($160bn) of the global insurance protection gap.
Many of the countries with the lowest levels of insurance are among the most exposed to risks such as climate change and are the least able to fund recovery efforts. Bangladesh, India, Vietnam, Philippines, Indonesia, Egypt and Nigeria each has an insurance penetration rate of less than 1%.
The country with the highest expected annual loss from natural disasters, Bangladesh, also has the largest insurance gap relative to GDP (2.1%). Expressed in absolute dollar values this equates to an insurance gap of almost $6bn in Bangladesh. Second highest is Indonesia at 1.4% of GDP, equivalent to an insurance gap of $15bn.
Countries with more wealth stand to lose more in pure financial terms. China is the country with the highest insurance gap expressed in dollar values ($76bn) due to the size of its economy and the fact that its insurance market is still developing.
Global economic losses from natural disasters are substantial and growing with annual expected economic losses of $165bn, according to Lloyd’s City Risk Index. They will continue to increase, driven by greater wealth, hazard exposure and, for some events, climate change.
The underinsurance gap, however, is hardly closing. In 2012 Lloyd’s and CEBR revealed that $168bn in assets globally were underinsured. This means the gap has closed by less than 3% over a period of six years.