Underinsurance has caused global catastrophe losses of US$1.3 trillion over the last decade as underinsured property continues to be a global challenge, Swiss Re
In their latest Sigma Study
, the industry giant said that the global shortfall in insurance coverage, or the ‘protection gap,’ has steadily risen over the last 40 years as many global markets grapple with an increasing challenge.
In Australia, general property underinsurance makes up 0.19% of GDP which leaves US$2.7 billion at risk, the study said, with some US$700 million exposed to a natural catastrophe gap.
The study stresses that, unless something is done to combat this global challenge, losses will continue to mount.
“Modelling potential future events yields a global estimate of the expected uninsured losses from natural disasters of US$153 billion annually,” the study states.
The Sigma Study is particularly pertinent for Australia as the Northern states grapple with underinsurance issues and natural disasters as the Northern Australia Premiums Taskforce continues to evaluate its options.
The study notes that while there are many reasons for underinsurance, education is a key driver to helping consumers and businesses understand what is at risk.
“There are different reasons for underinsurance, including factors like perception of risk, insurance knowledge, affordability, reliance on government post-disaster relief, lack of trust in insurers, and limited access and ease of doing business. Undervaluation of assets due to lack of information and awareness is another contributing factor,” the study says.
“The challenge for the insurance industry is to focus on the needs of those who are totally uninsured or insufficiently insured.
“Closing the underinsurance gap will require that the industry continues to develop data and analytical tools to track the evolving landscape of new risks and exposures, not only of natural catastrophes, but also of perils that are difficult to quantify such as terrorism, cyber, and supply chain risks. Further innovation in products, processes, and distribution are needed to reach previously uninsured consumers and risks.”
The study highlights the need for greater collaboration between the public and private sector as the best way to tackle a growing global challenge.
“Insurers cannot act alone,” the study states.
“They require supportive regulatory environments, risk information and, in specific cases such as terrorism or high-risk flood zones, government involvement to extend coverage capacity.
“Successfully addressing property underinsurance requires a coordinated effort and innovative thinking by both the public and private sectors.”