For a microcosmic view of the human toll of P&C’s US$1.8 trillion global protection gap, look no further than the devastating wildfires that killed over 100 people and gutted more than 2,200 homes and businesses in Lahaina, Maui, last August. Nearly a year later, the first home rebuild in the Lahaina impact zone is still underway, and far too many residents still lack stable housing.
“I want to start living life instead of being in constant survival mode,” Lahaina resident Amy Chadwick told the Washington Post last December, at a time when nearly half the island’s pre-fire population was still looking for a place to live. Chadwick told the publication that after 25 years of living in paradise, she was moving to the mainland with her husband, mother, and two kids. “We have to leave our island home. It’s heartbreaking.”
Chadwick’s remark is an understatement. As someone who began my career as a claims adjuster, I’ve witnessed firsthand the emotional and financial trauma wrought by catastrophic (CAT) events. According to Hawaii’s state insurance division, more than 3,700 homeowners and businesses have filed insurance claims, with nearly 1,500 properties suffering a total loss. By May, the tally for insured losses topped US$3 billion across 200 insurers. The total economic fallout, however, could reach US$6 billion or more.
Worldwide, economic losses from natural disasters of all kinds hit US$380 billion in 2023, with insured losses reaching US$118 billion, according to Aon. But this protection gap isn’t just propelled by natural catastrophes. In developed economies, new and evolving risks and changing consumer expectations are also contributing to the coverage shortfall.
For example, the rise of connected cars and the sharing economy are transforming pricing models and risk profiles, particularly for the 64% of Gen Z consumers who expect truly personalized insurance products. At the same time, an increasingly digital economy and e-commerce are heightening the threat of online fraud and theft—even as rising cyberattack volumes have many carriers struggling to properly quantify exposure and secure reinsurance capacity.
With just 31% of losses covered by insurance, the global protection gap grew to an all-time high of 69% last year. But it doesn’t need to be this way.
Innovation Is the Answer
On a global scale, the growing disparity between losses covered by insurance and those not covered by insurance poses a significant threat to individuals, businesses, and communities everywhere.
As an industry, insurance has always been indispensable in helping families and businesses get back on their feet when disaster of any kind strikes. But that’s only if homes, buildings, contents, and other assets are adequately covered. The protection gap widens when insurers struggle to design and bring to market insurance products that address new and evolving risks as well as modern consumer demands.
The challenge is enormous. But so are the opportunities to leverage a continuous stream of new innovations through an insurance ecosystem of technology partners. Advanced forms of technology like GenAI, Internet of Things (IoT), and predictive analytics can fuel whole new value propositions. When these and other technologies are integrated to a modern insurance platform, a core system of record can bring whole new capabilities and products to market quickly to meet the needs of our evolving insurance market.
Ecosystems: Conquering Through Collaboration
More than a set of alliances and much further reaching than even the most extensive partnership initiatives, insurance ecosystems are defined networks of pre-validated solutions from a variety of providers that can be rapidly utilized on their own or in combination.
Key prerequisites include a modern, cloud-based insurance platform like Guidewire that’s enabled by API-connected applications, embedded analytics, and workflows that leverage the full value of external and core data. By uniting various innovations with the data, regulatory expertise, and service delivery capabilities only insurers can provide, the value ecosystems create far exceeds what’s otherwise possible by each participant on its own.
I’m talking about new forms of insurance fueled by real-time, API-enabled technologies and data sources tied to an insurer’s core systems to enable it to address the protection gap through:
Rapid Product Innovation: Guided by data and insights from ecosystem partners or other providers, carriers leveraging platforms with robust development applications are empowered to bring fitted, innovative lines to market quickly. Using Guidewire Advanced Product Designer (APD), for instance, insurers can visually define, design, and test a new line—with the product definition, UI, and workflows autogenerated for rapid deployment. Once deployed, insurers can dynamically adapt lines to changing market needs without interruption.
Pricing Accuracy: The ability to access accurate, up-to-date property risk data from HazardHub, True Flood Risk, Pinpoint Predictive, and others enables insurers to shrink the protection gap in markets their rivals have been forced to exit due to high exposure to CAT risks and other perils. By identifying the small percentage of properties likely to account for the vast majority of potential damage, insurers can write good risks and avoid bad ones while reducing coverage gaps created by new and evolving needs for large numbers of policyholders.
Personalized Coverage for Changing Mobility Needs: When integrated to a core platform, ecosystem solutions like those from Cambridge Mobile Telematics, Octo Telematics, and others enable new forms of coverage that reduce protection shortfalls in personal and commercial mobility. A case in point: By tapping telematics, mobile telephony, and other technologies, usage-based, “pay-as-you-drive” coverage offers the fitted premiums needed to meet the expectations of consumers under the age of 30 for extreme personalization in insurance products. Meanwhile, emerging, multimodal technologies enable personal, commercial, or hybrid coverage regardless of the mode of transport in use (personal EV or rideshare, bus, train, e-bike, rental freight, robo-taxi, etc.)—addressing new and existing coverage requirements.
Expanded Insurance Distribution: Enabled through ecosystem solutions from Bindable, Mendix, and others, emergent forms of embedded insurance are bundled with third-party products (warranties on consumer electronics and automobiles, flight-cancellation coverage for air travel, etc.) at the point of purchase. Embedded offerings remove barriers to coverage for new and larger customer pools by offering insurance at the exact moment consumers and businesses are most likely to purchase it. By 2032, Swiss Re expects embedded insurance to add an extra US$1 trillion of net new gross written premiums through expanding digital distribution of insurance in emerging markets.
Innovative, Capacity-Neutral Products: New forms of parametric insurance are seen as key to bridging the growing chasm between insured and uninsured losses created by natural catastrophes and other perils. Because it lacks the capacity challenges of traditional insurance, parametric insurance is well suited for governments and businesses that are unable to secure traditional coverage due to elevated risk—or to augment coverage for those that can. Technologies like those from One Inc and Salient and offerings like the Guidewire Solution for Parametric Insurance can be used as part of parametric offerings that provide automated, predetermined payouts tied to a predefined claims trigger—tornadoes, wildfires, business interruption, crop yields—or virtually any peril tracked by an independent, third-party index. This form of coverage has proven crucial to helping local governments narrow protection gaps after Hurricane Tammy and other recent disasters.
Coverage Against Mounting Cyber & Fraud Losses: Worldwide, cyber thieves scammed online retailers and others out of US$429 billion last year. With cybercriminal networks increasingly leveraging deepfake technology and cybercrime-as-a-service offerings like FraudGPT and WormGPT in phishing schemes, malware attacks, and other scams targeting corporate and government networks, global cybercrime losses are expected to top US$10 trillion by the end of 2025. But today, it’s estimated that only about 10% of losses stemming from such cyber threats are insured. This 90% protection gap puts businesses, governments, critical infrastructure, and even national defense at risk. Depending on specific objectives, Guidewire Cyence and ecosystem solutions from Hexaware, EY, and others can help carriers understand, price, and mitigate cyber risk across commercial and some personal lines use cases. Together with verifiable mitigation steps, this can help secure reinsurance and reduce the addressable coverage gap in key sectors of the digital economy.
Seizing the Opportunity
Carriers don’t have to build an ecosystem on their own. At Guidewire, for instance, we manage and run the industry’s largest ecosystem of pre-vetted solutions from best-in-breed technology partners so insurers can rapidly integrate any of thousands of new capabilities that help narrow the protection gap—quickly and without interruption. And our Insurtech Vanguards incubator program curates the most compelling insurtech value propositions so our customers can stay ahead of the technology curve.
Still, for all their promise, ecosystems won’t solve the protection gap on their own. For larger-scale risks, it’ll take national governments, mass awareness, regulatory mandates, and more to address the current, profoundly unnerving state of affairs and prevent things from getting worse.
But by embracing the power of ecosystems, insurers can reclaim P&C’s vital role in society and empower people like Lahaina’s Amy Chadwick and communities like hers to recover more quickly in the wake of calamity. Changing consumer and business needs, coupled with a rapidly changing risk landscape, demand it. The clock is ticking, but the possibilities are endless.
For more about the P&C protection gap and strategies
for narrowing it, watch this short Tech Trends video:
