A worrying report has highlighted the growing value of global unprotected risk exposure and how it has risen steadily in the past five years.

The protection gap is the uninsured or unprotected portion of resources needed to fully mitigate a risk. It is the portion of costs to right the damage of a hurricane, for example, that is not covered by insurance, savings or other assets.

It often is representative of the work that does not get done after an event; the homes and businesses not rebuilt; the lives not put back together, for lack of resources.

The Swiss Re Institute’s insurance publication, sigma, has just estimated the global protection gap at a record $1.8 trillion in premium equivalent terms for 2022, a cumulative 20 per cent increase on the $1.5 trillion estimate for 2018.

The Fifth Annual Report on Resilience has expanded the insurance resilience indices with a new crop protection index because of the issue of food insecurity and has added the severe convective storm peril to the natural catastrophe index. Added to that in the report are catastrophes, mortality and health insurance.

And with this, sigma reports: “We estimate about 43 per cent of risk globally was unprotected by assets or insurance in 2022, improved from 46 per cent a decade ago.”

The report also said economic resilience rose in 2022 as monetary policy normalised.

“Macroeconomic resilience strengthened globally in 2022 as central banks increased interest rates and our macroeconomic resilience measure returned to its pre-pandemic level. However, it remains 15 per cent weaker than in 2007, prior to the global financial crisis.

“Risk is elevated: the inflation-taming monetary tightening process has laid bare financial stability and recession risks, while persistent inflation increases the need for fiscal support to offset the erosion of households' purchasing power. We expect little improvement in resilience in 2023 or 2024.”

The war in Ukraine is a threat to the world’s food supply and more than half of the global insurable crop exposure is unprotected against natural hazards. Swiss Re Institute’s market research indicates a need for resilience in four key perils.

The report states: “The agrifood system supports almost half of the world's population and food security has been a key concern since the outbreak of war in Ukraine. Yet our new crop index finds about 60 per cent of global insurable crop production was unprotected against natural disasters and accidents [eg fire, disease and insect swarms] in 2022.

“We estimate the global crop protection gap at $113 billion (premium equivalent), up by 28 per cent in nominal terms from 2016, emphasising the importance of agricultural insurance to smooth farmers' income fluctuations. Our natural catastrophe resilience index estimates that about 75 per cent of global risk was unprotected in 2022, with protection gaps largest in emerging markets.

“Health resilience shows encouraging strength, standing at 78 per cent in 2022, as living and health standards improved alongside economic growth, particularly in emerging Asia.

“However, mortality resilience is low at 43 per cent, implying that many households are vulnerable to the loss of a breadwinner.

“We estimate the global mortality gap widened to $406 billion in 2022, a record high, driven by inflation, wage rises and weaker financial markets. Life insurance has helped to improve protection in most countries, particularly those with higher resilience, but more still needs to be done.”

The report concludes that to reload resiliency, two strategies are required: contain expected loss and expand insurance coverage.

“Investment can lower the risk of damage to crops, property and infrastructure from natural catastrophes to structurally narrow protection gaps while supporting economic growth.

“Such investment can generate economic dividends that outweigh the cost by multiples from 2:1 to 10:1. Every US dollar invested in loss prevention in lower-income countries creates a relatively larger resilience dividend than in wealthier economies. By reducing risk, loss prevention also fosters insurability.”

The report said the insurance industry could incentivise loss mitigation behaviour and support risk transfer at the household and corporate levels.