Protection gap

The protection gap is the difference between total economic losses generated by a risk and losses actually covered by private or public insurance contracts. For natural catastrophes in 2024, this gap reached 181 billion dollars, representing 57 percent of total losses of 318 billion that were uninsured. This indicator goes beyond a simple market statistic: it measures the economic vulnerability of households, businesses and states when confronted with a major shock, since every uninsured loss must be absorbed directly by private wealth or public budgets. In Europe, according to EIOPA, only roughly one quarter of losses from extreme events was insured between 1980 and 2024. Several factors explain this gap: premiums deemed prohibitive for lower-income households in exposed zones, insufficient risk awareness, the moral hazard created by anticipation of post-disaster public relief, and the progressive withdrawal of insurers from zones whose risk can no longer be priced on commercially viable terms. The protection gap is also an early signal of a public financing crisis, since its widening forces states to intervene as lenders of last resort in growing proportions without having built up reserves in advance. In the context of climate change, the gap is trending wider in the most exposed zones.

The January 2025 wildfires in southern California destroyed more than 18,000 structures. A large share of the affected properties were covered by the FAIR Plan, the insurer of last resort, whose exposure had quadrupled since 2015 as private insurers withdrew: the socialization of the insurance gap translated into a special assessment of approximately one billion dollars on member insurers.

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