A new report from Swiss Re suggests that while insurance coverage has largely kept pace with rapidly growing risks, the rising value of assets affected by natural disasters, and the resulting increase in absolute coverage gaps, continues to pose a resilience risk, highlighting the need for targeted adaptation projects to reduce expected losses, reduce physical vulnerability, support insurability and improve the economics of risk transfer.
According to the reinsurer’s latest report, the global natural disaster protection gap will reach $424 billion by 2025, up from $395 billion a year ago.
Nonetheless, the proportion of required protection covered by insurance remains essentially unchanged from 2024, with the company’s resilience index at 27.3%.
“Our Natural Catastrophe Insurance Resilience Index is an insurance coverage measure that estimates the extent to which required coverage is covered by available private insurance coverage based on modeled expected losses. The coverage gap is measured in premium equivalent terms: it represents the difference between current coverage premiums and the premiums required to fully cover expected economic losses. We model expected losses for all major and most secondary risks, excluding wildfires due to data limitations,” Swiss Re explains.
Swiss Re said its Resilience Index has improved by two percentage points over the past decade, up from 25.3% in 2015.
At the same time, both required coverage and available coverage increased, with the latter growing slightly faster due to increased insurance penetration.
“However, in absolute terms, the protection gap continues to widen as more needs to be protected,” the reinsurer added.
Meanwhile, Swiss Re observed that if the long-term real growth trend in insured losses of 5% to 7% per year continues, global insured losses could reach $186 billion by 2030.
In this context, the company emphasized that increasing resilience and closing the protection gap against natural disasters requires both expanding insurance coverage to transfer more risks and reducing expected economic losses.
Swiss Re continued: “Targeted adaptation can reduce expected losses and help improve conditions for insurance availability and insurability. It can reduce physical vulnerability and help reduce the risk of catastrophic risks becoming uninsurable over time.
“For example, in Western/Central Europe, Sigma analysis shows that flood protection and adaptation measures, such as dikes, dikes and land-use planning, can help limit the growth of insured losses, particularly for countries such as the UK, France, Switzerland and Austria.”
The reinsurer concluded: “The right mix of adaptation measures, clearer assessment criteria and market incentives that reward risk reduction could support further improvements in global insurance coverage (resilience index) even as risk exposures rise.
“A comprehensive approach that combines insurance coverage with risk adaptation measures in exposed areas can close the natural disaster coverage gap.”
