Catastrophe insurers risk losses as protection gap persists

Fitch said unmet demand remains a major challenge for insurers and reinsurers.

Natural catastrophe insurance is expected to remain profitable over the long term, but both economic and insured losses will outpace GDP growth in the medium-to-long term.

The sector’s profit growth will likely be driven by innovative products backed by stronger public-sector schemes and constructive regulation, Fitch Ratings said.

The ratings agency also identified wealth creation, urbanisation, and climate change as the primary drivers behind the increasing demand for catastrophe cover. 

However, the report warned that issues such as affordability concerns, capacity constraints, data scarcity, and deficient legal frameworks could lead to long-term franchise losses for the industry.

To mitigate these risks and prevent the protection gap from widening, Fitch Ratings stated that policymakers, supervisors, and insurers must cooperate to implement alternative solutions. 

These include microinsurance, parametric covers, and insurance-linked securities, alongside climate adaptation measures, risk-sharing mechanisms, and state-backed reinsurance schemes.