Protection gap

The protection gap is the difference between the total economic losses a risk causes and the share covered by private or public insurance contracts. For natural catastrophes in 2024 it reached 181 billion dollars: 57 percent of total losses of 318 billion were uninsured. The figure is more than a market statistic. It measures what households, businesses and governments absorb on their own when a major shock hits, since every uninsured loss falls on private wealth or public budgets. In Europe, according to EIOPA, only about a quarter of losses from extreme events was insured between 1980 and 2024. The gap has several causes. Premiums look unaffordable to lower-income households in exposed areas. Many people misjudge their risk. Expecting public relief after a disaster creates moral hazard. And insurers pull out of areas whose risk can no longer be priced on commercially workable terms. The gap is also an early warning of a public funding crisis: the wider it gets, the more the state has to step in as a last resort, with nothing set aside. With climate change, it is widening in the most exposed areas. The Kahramanmaraş earthquake of February 6, 2023 gives the order of magnitude: more than 100 billion dollars of economic losses, about 5.5 billion insured according to Swiss Re, despite Turkey's compulsory earthquake insurance, DASK, set up in 2000 but poorly enforced and limited to residential buildings under a low cap. Two sources mix in the figure: penetration, when part of the population buys nothing, and underinsurance, when those insured are covered for too little. The French term déficit d'assurabilité misleads, since the risk is often insurable and simply not insured.