A duty to fill the protection gap

With their expertise, global reach and access to data, reinsurers should increasingly understand their role in helping society fill the protection gaps that exist in the world, says Laurent Montador, deputy chief executive, CCR.

The biggest reinsurers increasingly grasp the fact that they have a responsibility to society to share expertise and their capacity to help fill plug protection gaps—wherever they may occur.

That is according to Laurent Montador, deputy chief executive, CCR, who explains that this issue has come to the forefront of the agenda for many countries, partly because they have endured big losses in recent times and partly because of new and emerging risks that are not covered.

It is estimated that the global protection gap for weather-related risks alone is at least $180 billion. This statistic is very revealing for the re/insurance industry because the sector is very good at understanding and taking on weather-related risks.

“Solutions are out there and everyone benefits if we can get a handle on this risk,” Montador says.

This is predominantly a problem in emerging markets. Much progress has been made on the issue in some countries in recent years with governments working with the risk transfer industry to find solutions, sometimes in the form of risk pools. It is not confined to emerging markets, however.

Flood risk is a growing problem in many developed countries but is rarely adequately covered, primarily due to the historical challenge of attempting to model this complex risk.

The problem extends way beyond weather-related risks. There are many new risks in the world, which are rarely fully insured. Cyber risk is the best example but it also applies to the use of things such as drones and automated vehicles.

Closing the gap

The protection gap also exists in life and health on a very big scale. There are a lot of products in existence that could fill these gaps but there is often a long road to travel in terms of education in many countries for such ideas to become widely adopted.

“This is a challenge that transcends many areas of the world and many types of risk, yet it is in everyone’s interests to help solve this problem,” Montador says.

“For reinsurers, it will help drive growth, which has been in short supply in recent years. But it is also about doing something that is in the best interests of society.”

There is plenty of evidence that if insurance is in place, the economic recovery in the aftermath of a natural catastrophe is quicker, and the human deprivation and the cost to the taxpayer are lower.

Some initiatives have been set up, including the Insurance Development Forum (IDF), designed to coordinate the efforts of the risk transfer industry in trying to solve these challenges.

Montador believes that the industry is well placed to help improve the situation.

“With our access to big data and the expertise we have, we have the capability to make a big difference,” he says.

“Index-based policies, for example, can be fantastic add-on solutions because of how quickly they pay out and how easy they are to understand. This solution can be particularly useful when dealing with agri risks, for example, which can have a devastating effect on farmers.”

He stresses the industry can also do much to help on loss prevention.

“It is not just about paying claims, but trying to stop them occurring in the first place,” he says. “This is also a service that can be provided by the industry”.

Laurent Montador is the deputy chief executive of CCR. He can be contacted at: lmontador@ccr.fr