Moody’s said the global insurance protection gap is widening as economic growth shifts to underinsured emerging markets, where insurance penetration remains low and catastrophe losses are increasingly uninsured.
According to the company’s report, coverage gaps are generally larger in developing economies, where insurance penetration remains low due to limited availability and affordability constraints.
In contrast, insurance generally accounts for a smaller share of total losses in advanced economies, where insurance coverage is more widespread and a larger proportion of households and businesses are able to purchase insurance.
However, Moody’s said the picture was more nuanced than the straightforward developed-emerging market divide, with significant differences in protection gaps within countries and across risk types.
They are affected by factors such as insurance penetration, product availability, affordability and the types of assets at risk, resulting in economies with both high and low insurance coverage, according to the report.
Moody’s explains: “Even in highly developed countries, the risk of being uninsured is high. The coverage gap from the 2014 South Napa, California, earthquake was estimated to account for more than 90% of total economic losses. This reflects low uptake of earthquake insurance and relatively high deductibles where coverage is available.”
“Similarly, in less developed economies, there are areas with higher insurance coverage and therefore smaller protection gaps. When Hurricane Melissa made landfall in Jamaica in 2025, higher insurance coverage for hotels and large businesses on the island limited the overall uninsured loss rate to 67%. In contrast, homeowners in the most affected parishes had an uninsured loss rate of nearly 100%.”
Moody’s new report also talks about how protection gaps in individual regions can change quickly after major disasters, as such events often increase risk awareness and encourage more insurance purchases.
For example, the ratings agency highlighted that demand for flood insurance has been growing steadily in Germany due to frequent flooding events in the country since the beginning of this century, including the severe Bernd floods of 2021.
At the same time, severe disasters occurring in rapid succession in the same area may have the opposite effect, as frequent losses increase insurance costs and reduce insurers’ willingness to provide coverage.
“This contributed to a decline in insurance supply in parts of California following the 2017 Tubbs Fire and subsequent wildfires,” Moody’s said.
This dynamic is one reason the protection gap is widening, as insurance coverage for certain risks stagnates or declines in certain areas.
“For example, higher costs and restrictions have led to lower insurance take-up rates in areas with the highest wildfire risk in California,” Moody’s said.
“As private insurance companies retreat, homeowners are increasingly turning to the Fair Access to Insurance Requirements (FAIR) program, California’s insurance company of last resort. FAIR has historically set coverage limits that may not fully cover the cost of rebuilding properties in affluent, high-risk areas.”
At the same time, changes in the regional distribution of disaster events are said to have widened coverage gaps.
The rating agency noted that extreme weather is spreading to areas that have historically been less affected by extreme weather and where preparedness, including appropriate insurance coverage, is correspondingly lower.
Moody’s continued: “In addition, emerging chronic natural climate risks such as water shortages and heat waves are causing increasingly large and frequent economic losses that remain largely uncovered by insurance. About 95% of losses related to the 2025 European heat wave will be uninsured.”
As a result, Moody’s expects that the gap between economic losses and catastrophe insured losses will continue to widen, even in years without unusual disaster activity, highlighting the growing challenges facing insurers, governments and policyholders.
