New Delhi [India], April 3 : Protection gaps are expected to worsen across all lines of the insurance business till 2030 as insurers worldwide contend with unsustainable rate-driven growth, according to new research released today by Bain & Company.
As per the definition, the protection gap refers to the difference between insured and uninsured losses.
The report by the global consultancy firm warns that protection gaps will widen across all lines of business through 2030, with only 25-33 per cent of natural disaster damages and less than 50 per cent of mortality risks expected to be covered by insurance.
Bain's report, Bridging the Protection Gap: Affordability, Access, and Risk Prevention, shows the challenges facing the insurance industry in matching price-to-risk profitability.
This, the global consultancy firm said, is in part due to changing risks such as the rise in natural disasters and cyberattacks, unaffordable property premiums, and the declining relevance of life insurance, especially among younger generations.
Bain found that by 2030, only one-quarter to one-third of the damage from natural disasters will be covered by insurance; for mortality, it could be less than half.
"Bolstered by unsustainable tailwinds, insurance companies find themselves at an inflection point," said Sean O'Neill, head of Bain's global Insurance practice.
"Over the past couple of years, we've seen rate increases in the property and casualty sector and interest-rate-driven annuity sales in the life sector... Insurers will need to be proactive and act now if they wish to navigate these impacts," he said.
Another challenge facing insurers worldwide is the threat of rapidly increasing cyber risks in a much more digitally enabled and data-rich world.
Bain warns that costs from global ransomware damage are expected to climb to more than USD 250 billion within the next six years, and actions by individual carriers will not be sufficient to address future risks.
"Throughout the insurance sector, risk prevention is an increasingly critical component of strategy," said Andrew Schwedel, partner in Bain's Insurance practice.
Despite several challenges, insurers are also facing a rich set of opportunities, including recent technological advancements.
Bain anticipates that AI-driven industry improvements will allow insurers to realize a 10-15 per cent revenue uplift, up to 30 per cent operating expense savings, and a 30-50 per cent reduction in P&C leakage (losses due to errors, inefficiencies, or fraud in claims handling).
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