Executive Summary

The protection gap. The economic and social impact of disasters is increasing all around the world. In 2017, Hurricanes Harvey, Irma and Maria were so destructive as they swept through the Caribbean that they decimated many of these small island economies. Even in a wealthy country like the USA, the economic impact of these natural disasters was enormous. In recent years, earthquakes dealt a blow to Mexico, France saw the worst rains in 50 years with floods peaking in Paris, typhoons and storms shook the Philippines and Hong Kong, and wildfires ravaged California and Australia.

Yet, the economic losses from such disasters are underinsured. In what is known as the protection gap, some 70% of global losses from natural catastrophes are not insured, equating to $1.3 trillion over the past 10 years. In 2017 alone, uninsured losses for weather-related disasters were estimated to be around $180 billion. At the same time, other forms of large-scale risk, such as terrorism, cyberattacks and pandemics are also increasing, with little financial protection to address the aftermath.

The social and economic resilience of a country, and its political stability, are dependent on the ability to recover from disasters. In the short-term, immediate post-crisis financial response is critical. Failure to provide a rapid injection of capital in response to disaster puts lives at risk. In Puerto Rico, the death toll of Hurricane Maria rose above 4,000, with one-third of the deaths being caused by delayed or interrupted medical care. In the longer-term, reconstruction of housing, infrastructure and businesses after a disaster is essential for recovery. Bridging the protection gap provides one way to underpin such financial recovery.

Protection Gap Entities (PGEs): Marrying market solutions to social objectives. In their quest to address some of their social objectives in protecting their citizens from disaster, governments are increasingly turning to market solutions, such as innovative means of insuring for potential loss. They do so through the establishment of Protection Gap Entities (PGEs) that operate between state and market in developing novel solutions/schemes that mobilize global (re)insurance capital in addressing the aftermath of disaster.

This report draws on a large-scale research study of different PGEs around the world, in both developed and developing economies, to explain their role, their effects and their limitations in managing risk and alleviating the financial consequences of disaster. While such government interventions are growing, lessons need to be learnt about how to maximize their positive effects and guard against potential unintended consequences that can exacerbate the protection gap. This report shows the strategic implications of different types of PGEs, what they may be best used for, and how they can evolve to better help society and government to protect against the growing threats of natural and manmade disasters.

Who should read this report? This report is useful for the different stakeholders involved in the work of PGEs: from policy makers and governments, to NGOs, to those running PGEs or insurance market organizations. These stakeholders often have very different interests and goals, which are reflected in the way they understand the purpose of PGEs and insurance. This report provides valuable insights into the common features of PGEs, and also examines some of their key differences, providing an opportunity for learning across stakeholders, PGEs, sectors and countries.