The global protection gap may expand to $1.86tn by 2025, according to a new report published by PwC.
That is considered as a significant growth of around 33% in just a few years, as the protection gap was estimated to have reached $1.4tn in 2020. PwC believes the size of the protection gap is actually accelerating now, as insurance coverage is not keeping up with economic growth and increasing values-at-risk in terms of urbanisation.
The report said the response to a widening protection gap needs to be innovation-led and efficient risk capital needs to be at its heart, meaning the opportunities to provide insurance and reinsurance capital in capital market forms will almost certainly be at the centre of efforts to narrow the gap, or at least slow the widening.
With a growing need to find long-term solutions to address social and economic disparities and business resilience, insurers must go beyond their traditional mandate. Trust is also an issue for the (re)insurance market and driving the protection gap wider as well.
If people trust insurance less and less, it means the industry will increasingly struggle to maintain its relevance, and so the gap will widen as more of society foregoes coverage in certain areas of their lives.
To bridge the trust gap and narrow the protection gap, it is going to take a customer-first, product design-led approach to insurance protection, backed by the most efficient access to reinsurance capital there can be. Capacity and risk capital will be needed in significant amounts, as the industry adjusts to respond to the accelerated widening of protection gaps. M