Why most economic and societal losses remain uninsured - A global perspective on protection gaps

My key takeaways from the Malaysia Insurance Institute (MII) Talk

Talk Title: Why most economic and societal losses remain uninsured - A global perspective on protection gaps, by Dr. Kai-Uwe Schanz (The Geneva Association) 

▹Uninsured losses = risk protection gap 

▹Insurance Protection gap

▹Uninsured losses as a share of total economic losses. 30% insured globally 

▹Historical data (Natural catastrophe/Nat Cat): 90% of the protection gap is due to natural catastrophe

▹Our industry is not relevant in the low income and lower-middle-income group for natural catastrophe

▹Over the period of 30 years, the high-income group show that they are insured about 70 - 80%

▹Low income countries show an enormous degree of vulnerability as a result of underinsurance

▹In emerging Asia, protection gap exceeds 90% for major perils (storms, floods and earthquakes)

Forward looking data

▹World's biggest economies, US, China, and Japan have the largest expected uninsured catastrophe risk

▹Philippines and Taiwan exhibit the largest macro-economic exposure

▹Nat cat protection gap - 70% globally

▹Cyber protection gap is even more dramatic than nat cat protection gap. Global cyber losses are estimated at about usd500bn per annum which is 4x bigger than Nat cat. 1 per million total insurance globally

▹10 - 15 years we can become irrelevant if we are not concerned about cyber insurance. We need to secure our relevance to the digital society 

▹The world spent 8 trillion USD on healthcare. Surging expenses as a root cause driven by medical inflation, expanding treatment options and higher customer expectations. The growth is higher than economic growth. Upper middle-income country (Malaysia)

▹Healthcare - personalised business/service

▹Health protection gap - cost drivers

▹Demography - aging (end of life morbidity) 

▹Income - driving demand in healthcare expenses

▹Technology - make healthcare more efficient 

▹Productivity - wage is higher than productivity

▹Policy - funding mix in different countries

▹Healthcare financing systems

1. General taxation 

2. Social insurance

3. Private health insurance

4. Out of pocket expenditure (self-financing) 

▹Health protection gap = stressful self-financing costs + estimated non-treatment costs due to unaffordability. This causes an estimated size of USD 1.4 trillion for emerging Asia. More than 8% of the regional GDP. For Malaysia, it is assumed 50% out of pocket is stressful

▹Technology adds the appeal and help in Healthcare, health insurance sector

▹Protection gaps are a serious threat to economic growth. Governments play a bigger role in addressing the gaps. Insurers need to improve service quality, customer experience, and product innovation and improve awareness of building

▹Medical inflation and aging populations add to coverage gaps

▹Root causes - awareness matters more than affordability. Technology is seen as the most effective remedy to protection gaps

▹Root causes - Supply, not enough supply of insurance. If no excess income, tough to buy insurance. Demand - Triple-A, Awareness, Affordability, Appeal

▹We are business of trust, promises

▹Why people don't want to buy insurance? 

1. Misunderstanding - do not communicate in a consumer-friendly way

2. Distrust - push products that customer do not need

3. Uncertainty - cannot be protected against everything

▹Findings from online interviews 

Less than 30% of those who own insurance policy feel secured and protected and more than 50% had a bad experience with an insurer 

▹Key obstacles to further sales

1. Trust 

2. Understanding of products

3. Transparency/communication of the industry

4. Cost

▹Insurance protection gap is tough to be measured. General protection gap can be measured and help insurers to mitigate risks 

▹Key challenge - make insurance an affordable, appealing and well-understood tool to relieve society from severe financial hardship

▹Healthcare and cyber protection gaps are under-researched. Narrowing these gaps is imperative to maintain the industry's relevance

Lifelong student, 

Sofia