Insurance industry must tackle global underinsurance problem, Geneva Association says

Underinsurance, both in developing countries and industrialized nations, is presenting a threat to economic development and overall societal well being, a new report from the Geneva Association suggests.

Last year, total insurance premiums totaled roughly US$4.65 trillion, or 6.3% of global GDP, the insurance think tank says in its report.

Industrialized countries account for roughly 83% of premiums, while emerging markets account for just 17%, which “falls considerably short of their share of global GDP of close to 40%, suggesting large-scale underinsurance and potential threats to sustainable economic development,” the report says. Even in more developed countries, “pockets” of underinsurance do exist, the association notes.

The report cites Lloyd’s research from 2012, which found 17 countries to be underinsured, with a coverage gap of US$168 billion, around 8% of global non-life insurance premiums in 2013.

Overall penetration levels (premiums as a share of GDP), have remained around 3% over the past 30 years, despite GDP per capita growing significantly from about US$5,000 to US$8,000, the report also notes.

Penetration in 2013 stood at 2.7%, down from 3.2% a decade earlier, the report suggests. “There are increasing signs that growth in insurance has failed to match the rise in economic activity and risk exposures, leading to widening underinsurance,” it says.

Affordability, low risk awareness, immature regulatory regimes and limits to insurability are all factors contributing to underinsurance, according to the Geneva Association.

To combat the issue, a multi-stakeholder approach including insurers, government and other advisors is needed, the organization argues.

The report presents nine strategies or efforts that can help close the gap:

• financial literacy programs;

• microinsurance; public-private partnerships;

• product innovation, particularly addressing disruptive digital technologies;

• more transparency and less complexity in policies;

• more advisory services to help businesses determine the right level of coverage;

• more understanding from regulators and legislators;

• effective compulsory schemes;

• and joint data collection efforts.

“For the insurance industry, underinsurance goes beyond the missed commercial opportunity,” the report says. “In countries where insurers absorb only a fraction of economic losses, stakeholders will inevitably start questioning the social purpose and utility of the industry.”