Ratings agency Moody's has in a new analysis stated that the global economic impact of physical risk may reach as much as $41.4tnn in less than two decades, amid rising sea levels and more frequent and severe natural disasters, with much of the damage not being covered by insurance policies.
Insurance protection gaps are a widening and pose a systemic risk. But uninsured losses do not disappear, rather they are covered by governments, businesses and households and the unforeseen exposures can hold back growth and development.
Moody’s has created an interactive data visualisation that shows the variations in the insurance protection gap across different regions for different perils such as earthquakes, wildfires, and hurricanes.
Developing economies face greater impact
The report mentions that the protection gaps tend to be wider in developing economies where take-up of insurance tends to be lower. The gap also widens in these regions as their economies are growing faster, bolstering the value of assets.
In the Asia Pacific region, an average of 0.83% of GDP is covered by insurance. That compares with the G7 average of 2.38% of GDP being insured.
Changes in extreme weather events are compounded by population growth in exposed areas. Moody’s analysis shows that the global population living in flood-prone regions has increased significantly. As a result, approximately 2.7bn individuals -roughly one-in-three people globally - lived in areas at risk of flooding as of 2020.