Living through times of uncertainty and change implies higher risks, but individuals and businesses are increasingly living in a world where their wealth, income and health are not adequately protected.
Recently, the Global Federation of Insurance Associations (GFIA) put a US$3 trillion figure on the protection gap covering pensions, cyber, natural catastrophe and health risks.
These gaps are driven by supply-side factors like insufficient insurance or government protection and demand side factors such as lack of adaptation to risks, affordability challenges, spending preferences, or lack of awareness of risk.
For general insurers, the focus is on natural catastrophe and cyber risks. New Zealand has high levels of insurance cover for property so the nat cat gap is small relative to many other countries, but even so there are uninsurable risks making public sector involvement inevitable. The cyber protection gap is huge both here and overseas.
GFIA says insurers alone cannot address all protection gaps. Narrowing protection gaps is a responsibility of both the private and public sector. Insurers bring their risk management, modelling and distribution partnerships, and public stakeholders can bring the appropriate regulatory frameworks, public awareness campaigns and in some instances public-private partnerships to close the gaps.
Four megatrends – technology (connectivity, cyber risks), climate change (more frequent and severe events), demographic and societal change (ageing society) and macroeconomic and political issues (inflation, changes to the world order) – are having a significant impact on the gaps. These give rise to new, rapidly evolving risks and reinforce existing ones.
The cyber gap is estimated as almost US$1 trillion, but it could be a lot more. This figure does not include second order effects such as lost business or reputational damage. It is estimated there were 628 million ransomware attacks globally in 2021.
The nat gap is smaller at not insignificant at US$159 billion in 2021 with wide variability around the world. Nat cat losses are expected to grow driven by climate change and increased urbanisation and asset values.
GFIA makes recommendations for closing the nat cat and cyber protection gaps.
For cyber, these include developing:
For nat cat gaps, these include:
We do some of these things well in New Zealand, but not all.