Insurance, a key player in building resilience
According to the World Bank, the destruction caused by extreme weather pushes 26 million people into poverty each year and has a direct impact on the long-term economic recovery of a region affected by catastrophe.
Insurance is an essential part of a community's resilience, and could play an essential role in building resilience, but unfortunately the protection gap is still very large. For example, in 2017 r the insurance industry covered less than 40 percent of the losses, leading to a global insurance protection gap of USD 231 billion, Aon's analysis reveals. Moreover, if in developed regions Government programs can fill at least in part the gap, in the rest of the world these costs are being borne by the most poor and vulnerable members of the society. In the absence of sufficient insurance coverage, the impact on economic growth can be not only detrimental in the short-term, but permanent.
Fundamentally, building resilience is supported by having speedy and reliable financial relief funneled to those who need it most after an event occurs. This is the core function of insurance, provided that the destroyed properties have the appropriate coverage. Additionally, providing incentives that reduce risky behavior and promote risk mitigation efforts are also among the benefits of a well-developed insurance market. In other words, insurance can help at both ends of the catastrophic events chain.
The Insurance Development Forum states that a "1 percent increase in insurance penetration can reduce the disaster recovery burden on taxpayers by 22 percent".
Closing the protection gap should be an immediate priority for any insurer wishing to stay relevant in a global economy that is becoming riskier. The impact of climate change on the frequency and severity of catastrophic events, coupled with the increasing concentration of people in the world's most hazard-prone areas, means that the stakes are high, concludes the articles' author, Liz Henderson, Head of the Catastrophe Risk Analytics group in Chicago for Aon's Reinsurance Solutions Analytics business.
Her article reviews what goes into the protection gap and its root causes, and provides examples of innovative ways the insurance industry is stepping up to close the gap.
Read here the full article