The increasing problem of unaffordable and unavailable insurance has severely impacted some insurance lines. According to global industry stakeholders, the result is rising numbers of underinsureds in advanced economies. This can leave brokers with the difficulty of balancing customers’ insurance needs against the reality that finding coverage may not be possible.
However, a report by the Geneva Association has indicated strategies insurers can adopt to make insurance offerings more inclusive and close protection gaps.
Inclusive Insurance in Advanced Economies, published in November, surveyed 28,000 households across seven advanced economies including the United States, the UK and Japan. The examination found significant protection gaps impacting key insurance lines including property, motor and health.
“As in other parts of the world, in Australia, too, insurance premiums for properties in high-risk areas – like flood-prone regions or bushfire zones - have skyrocketed and hundreds of thousands of homes could become ‘uninsurable’ by the end of the decade,” said Schanz, director of social and financial inclusion.
Schanz said unavailability can be a significant issue when insurers lack the data to assess a risk profile or risk pools may be too small for effective mutualisation.
Schanz said “exclusionary policies” are becoming more common as insurers manage their increasing risks. The insurance expert said, across the seven countries surveyed, vulnerable communities including low-income earners, Generation Z, older people and immigrants tend to have less insurance and suffer more severe inclusion gaps.
However, Schanz said there are concrete steps insurers can take to overcome barriers to more inclusive offerings.
Schanz also detailed the barriers that can prevent insurers from taking these steps. He said “primary obstacles” include their hesitation to invest in low-margin or high-risk products.
“For example, in areas prone to natural disasters or where risks are difficult to model due to a lack of reliable data,” he said.
Schanz said customer protections or price regulations can have the adverse effect of hindering the rollout of innovative or low-cost insurance products.
“In property insurance, constraints on risk-based pricing can prompt insurers to exit entire markets, which has happened in California,” he said.
Scaling insurance operations in the remote or underserved regions that likely need more insurance offerings, he said, can also be logistically complex and expensive.
There is also another familiar issue: lack of trust in insurers.
“Many potential customers distrust insurers or lack understanding of the benefits, leading to low uptake even when products are available and affordable,” said Schanz.
However, the Geneva expert suggested that technology has reduced protection gaps for some populations but the progress is “uneven.”
“While access to insurance has improved on the back of digital platforms and mobile technology, digital exclusion remains a barrier for older and other populations without access to smartphones or the internet,” said Schanz.
This “uneven” progress, he said, reflects both new emerging risks and growing populations with specific needs, including gig economy workers and migrants.
Schanz said climate change risks, including more frequent nat cats, have exacerbated affordability issues. Increasing urbanisation in high-risk areas, including along coastlines, has also driven up premiums.
However, the insurance expert said technology has also played a role here to help mitigate some of these risks.
“The rise of microinsurance products, especially in low- and middle-income markets, as well as technology, such as parametric insurance and pay-as-you-go models, have enabled cost reductions, benefiting underinsured populations,” said Schanz.
Schanz said conversations with regulators and shareholders have made large insurers increasingly aware of the need for inclusive insurance.
“They also appreciate that there are vast, untapped market opportunities,” he said.
However, he suggested that smaller firms could lack the resources to engage with underserved populations.
Are you a broker? What protection gaps are you seeing in the insurance market? Please tell us below.
