Addressing the Protection Gap 

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Through Public/Private Partnerships 

& Other Mechanisms
Subcommittee Membership

Dan Glaser

President & CEO,

Marsh & McLennan Companies

Subcommittee Co-Chair

Sean McGovern 

General Counsel, AXA XL Subcommittee 

Co-Chair

Eric Andersen

Co-President, Aon

Amy Bach 

Executive Director,

United Policyholders

Kent Sullivan

Commissioner

Texas Department of Insurance

Jillian Froment

Director

Ohio Department of Insurance

Birny Birnbaum

Executive Director.

Center for Economic Justice 

Greg Crabb

President & CEO, Amerisure

John Franchini

Superintendent of Insurance,

New Mexico

George Keiser

Representative, North Dakota House of 

Representatives

Chris Swift

Chairman & CEO, The Hartford 

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How Do We Define the Protection Gap?

The Geneva Association has developed two definitions of the 

“Insurance Protection Gap:”

1. The difference between total losses and insured losses.

2. The difference between the amount of insurance that is

economically beneficial and the amount of insurance actually

purchased.

The Subcommittee modified the first definition for the purposes of 

its work.

The Subcommittee defines the Insurance Protection Gap 

as “the gap between the insured and actual economic 

losses caused by large scale catastrophic events.”

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A Global Look at the Protection Gap by the #’s 

Total coverage gap (all lines):

USD162.5bn

(source: Lloyd’s of London, 2019)

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In 2017, the global catastrophe

protection gap was USD 195bn,

or approximately 59% of total

economic losses of

USD 330bn

(source: Geneva Association, 2018)

The future protection gap is

estimated at more than

USD 150bn

p.a. or about 0.25% of global GDP

(source: Swiss Re, 2019)

70%

of Nat Cat losses globally 

were uninsured between 

1980 and 2017

(source: Geneva Association, 2018)
A Domestic Look at the Protection Gap

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According to the NAIC:

Only 1%

of properties outside of flood 

zones have flood insurance, yet 

half of US floods occur in these 

areas.

Most small businesses do not 

have flood insurance. 

According to FEMA :

40% go out of 

business after a 

disaster

Take up rates of NFIP 

insurance were:

<1% across the 

Midwest (AM Best)

Wildfire Losses added up to:

$20Billion 

In 2017 and 2018
en

Process to Address the Gaps

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1 Id tify the causes of the Protection Gap

2 Identify where risks can be avoided

3 Identify how risk can be mitigated

4 Identify challenges to implementation 

5 Identify how risk can be transferred
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1 Identify the Causes of the Protection Gap

• Consumer Factors and Lack of Clear Consumer Education: 

• “Moral Hazard” – No coverage due to belief that Government will cover all costs post 

disaster.

• Insurance purchases for natural catastrophes increase in the immediate year post-event 

yet, but drop in subsequent years absent of further disasters.

• Lack of true understanding of risk and vulnerability. Army Corps of Engineers: homeowner 

in a special flood hazard area has a 26% percent chance of experiencing a base flood in a 

30-year period, the average length of a mortgage. 

• Lack of clarity around terms of coverage of the policy.

• Market and Economic Factors:

• Policy terms that exclude risks, limit coverage, or impose special deductibles create gaps 

and should be clearly identifiable.

• Affordability as a clear & consistent barrier to obtaining coverage.

Solutions: 

• Provide assistance for policyholders through means-testing and consider risk-based 

pricing.

• Better public policies and regulations are necessary to encourage homeowners and 

businesses to protect themselves against these risks. This includes more coverage options 

with better terms.
Causes of the Protection Gap

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As an industry, we need to help people 

understand their catastrophic event exposures, 

the potential risks, and their impact so they can 

make informed decisions. That’s why it’s 

imperative for the industry to provide data and 

tools to agents/brokers to make it easier for 

them to explain catastrophic event risk to their 

clients during the policy binding process.
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2 Identify Where Risks Can Be Avoided

• Since 1980, 246 weather-related disasters in the United States 

caused at least $1 billion in damages each.

• Damage from the “billion-dollar disasters” together totaled 

over $1.6 trillion.

Flood Earthquake Wildfire Wind
3 Identify How Risks Can Be Mitigated

• Adhere to recommendations from the National Mitigation Investment 

Strategy.

• The Investment Strategy’s purpose is to increase the nation’s resilience to 

natural hazards through more effective, efficient mitigation investment. 

1

FEDERAL 

GOVERNMENT

(G) 

INDIVIDUALS

( ID ) INDUSTRY

( I )
Goals and Recommendations for Mitigation

Goal 1:Demonstrate How Mitigation Investments Reduce Risk 

Through Effective Education (G, I & ID)

• Making Risk Mitigation Relevant to Community: Ty mitigation investment to community values.

• Building Community Capacity & Consumer Education: Identify a Chief Resilience Officer to coordinate 

resilience and sustainability efforts at the local/state/federal level.

• Build Community Support for Reslisence Efforts: Facilitate partnerships with public and private 

organizations to develop resilience educational materials.

• Educate Policymakers: Demonstrate that every dollar spent on mitigation and model codes saves six 

dollars in post-event costs. For example, the Federal Government appropriated nearly $140 billion nat cat 

related expenses in 2017 (Approximately 18% 2018 fiscal deficit).

• Identify and Prioritize Mitigation: Identify and promulgate cost effective accepted mitigation measures.

• Product Transparency: Homeowners policies should have explicit disclaimers on what is included/not 

included for specific perils. For example, earthquake and flood coverage are not included in most 

homeowners policies and this should be articulated.

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Goal 2: Coordinate Investment in Mitigation to Reduce Risk (G&I)

• Information Sharing, Access and Availability to Risk Information: Create a central 

repository or website with state/local resources accessible by government and industry. 

FEMA has begun to share certain flood data with the private sector, however, greater detail 

and scope is needed to facilitate more private participation in market.

• Alignment of Program Requirements and Incentives: Align strategies and funding 

opportunities to prioritize risk-based investments—as noted in the Disaster Recovery and 

Reform Act of 2018.

• Easier Access to Mitigation Funding: Simplify mitigation funding processes, coordinate cofunding, and encourage plan integration.

• Coalition Building: Partner on mitigation and resiliency efforts with relevant bodies.

• Financial Incentives: Federal Government and non-federal partners will use and expand 

financial products and approaches for mitigation investment – including funding, 

incentives, and risk transfer opportunities.

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Goal 3: Financial Incentives to Implement Mitigation Measures 

(G&I)

Incentives may include:

• Direct government subsidies (G)

• Tax Benefits (G)

• Risk-based insurance pricing so that premiums may change to reflect any 

reduction in risk. (G & I)

• Provide means-tested financial assistance in the form of mitigation investments 

to those impacted by a move to risk-based pricing. (G & I)

• Encourage Fannie Mae, Freddie Mac and their regulators to adjust mortgage 

rates to facilitate the purchase of appropriate nat cat insurance coverage, 

including flood.(G)

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Goal 4: Make Mitigation Investment Standard Practice (G)

• Building Codes: Adopt and enforce up-to-date codes: 

https://buildstrongamerica.com

• Zoning: Develop and enforce land use policies that restrain growth in high-risk areas 

i.e. (i) Landscaping regulations to mitigate against wildfires and; (ii) Fuel load 

reductions to reduce wildfires

• Critical Infrastructure: Strengthen critical infrastructure lifelines and consider value 

of proactive mitigation

• Mandated Insurance: Laws mandating certain types of coverage and at certain 

thresholds (i.e. flood insurance within certain flood zones)

• Government Backstop Programs: These backstops can facilitate private sector 

insurance solutions likely to include partial coverage options

• Utilising and Investing in Natural Assets: Natural assets tend to be more adaptable 

and cost-effective than built infrastructure due to their natural resiliency 

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Utilising and Investing Natural Assets:

“Investing in nature to reduce disaster losses:” Decades of human development have eroded natural 

assets, contributing to an increase in climate-related risks. Strategically designed ecosystem protection 

and restoration can significantly mitigate many climate-related disasters. 

• Coastal ecosystems can reduce wave energy and inland flooding by providing resistance to water flow. In the US, coastal wetlands 

helped to mitigate against $625 million in direct flood damages, resulting in a 16% average reduction in annual flood damage (1)

• Mangroves are very effective at reducing surge heights during fast moving storms. Without mangroves, globally 32% more people 

would be flooded under 1 in 10 year events and 16% more people would be flooded in 1 in 100 year events (2)

• Temporal wetlands also have high potential for storm surge reduction. Wetlands provide greatest value where they are most extensive 

(e.g. Maryland) or are in front of the greatest assets; as an example, flood damages avoided in New York during Hurricane Sandy were 

approximately $140 million due to the natural mitigation of wetlands. (3)

Recommendations: 

•

•

•

•

•

•

Allocate federal funding for natural infrastructure to protect natural ecosystems and to invest in conservation projects

Offer tax incentives/fast-track permitting for natural infrastructure projects

Coordination among governments, ecologists and risk modelling experts to assess natural assets in relation to climate risk reduction 

and to quantify cost-benefits of natural asset mitigation strategy

Partner with insurance companies by offering tax credits for development of these natural assets to act as natural barriers to their 

portfolios

Carbon Credits: Mangroves and wetlands are some of the greatest sequesters of carbon, and its redevelopment can be enhanced by 

carbon credits

Insurance companies can see this as an opportunity to insure natural assets dues to value it brings to coastal communities

Potential Challenges: 

• Lack of institutional capacity to address and coordinate the multi-stakeholder involvement required from numerous 

governmental/private sector actors across multiple sectors to implement effective restoration/conservation efforts of natural

infrastructure 

• Potential lack of technical expertise 

• Geographically-specific data may not be readily available or easily collated 15

Sources: 

(1) UN Environment (2018)

(2) Conservation Gateway (2018

3)Narayan, S. et al : The Value of Coastal Wetlands for Flood 

Damage Reduction (2017

Municipal Natural Assets Initiative (2018)

)
Goal 5: Effective Use of Traditional Industry Solutions and 

Innovative Products to Increase Transparency (I)

• Increase Take-up Rate of Traditional Products: Agent training, increased 

consumer education and increased marketing can increase consumer awareness 

about their coverage options.

• Innovative Products: Microinsurance, Parametrics, On-demand Insurance

• New and Enhanced Digital and Mobile Technologies: Technologies help to 

promote affordability, awareness and product appeal.

• Product Design: Embrace the latest technologies and develop appropriately 

regionalized models to assess risks.

• Climate Impact: Coordinate among stakeholders to assess natural in relation to 

climate risk reduction and quantify cost-benefit of natural asset mitigation.

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4 Identify the Challenges to Implementation

Increased Risk-Based Pricing (reflecting mitigation and/or increased risk): May exacerbate other issues 

surrounding take-up of insurance in terms of availability and affordability. Need to find balance between 

viability & affordability to ensure participation in high risk areas.

Data Collection: Needs more specificity including to be sufficiently geo-referenced, with a broad range of 

indictors such as critical infrastructure, details of claims ,i.e. recently released FEMA data does not provide high 

geographic specificity or reflect certain aspects of claims such as the frequency of an event .

Implementation of Hazard Conscious Building Codes: Can be patchy at local level due to limited resources, lack 

of coordination, lack of active enforcement. Codes and standards may vary within states and regions. Possible 

Solution: consider minimum uniform standards

Not enough focus on mitigation across all hazard levels and frequency: Solution: need to customise mitigation 

efforts to account for all possible consequences across all possible hazard levels not just on mitigating extreme 

events / “1/100 year event”

Proposal of Mandated Insurance: May be unpopular, enforcement can be difficult, may make it less affordable, 

does not solve areas outside designated areas e.g. NFIP - a house just 1km outside a high hazard flood risk area 

does not have to purchase flood insurance. Also difficult for communities to know if mitigation efforts required 

under the NFIP program are being sufficiently enforced. 

Mandatory Offering (Such as CEA): Consumers may continue to perceive themselves as not at risk due to lack of 

education and consumer behaviour, while pricing may be a deterrent leading to further poor take-up rates. 

Behavioral Factors: Research suggests that along with peoples’ tendency to under-estimate the risk of lowprobability events, people do not tend to purchase against low probability and high-loss events, even if this is 

offered at favorable premiums (Holzheu & Turner, 2017)

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5 Identify How risk can be Transferred

Options to Transfer or Share Risk (G & I)

• Reinsurance

Encourage the use of traditional reinsurance products. The effectiveness of the 

NFIP’s reinsurance program is just one example of how federal insurance, loan 

or loan guarantee programs protect taxpayers.

• Environmental impact bonds, pay-for-performance models, and insurancelinked securities reduce risk and deliver returns for investors. For example, risk 

transfer occurred after Superstorm Sandy when New York City’s Metropolitan 

Transportation Authority issued $200 million of catastrophe bonds. The capital 

markets provided additional financial protection against storm surge.

• Catastrophe bonds have also transferred risk for earthquakes and wind. 
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Appendix A: Flood as a Case Study: What are 

Systemic Issues Constraining the Private Flood 

Insurance Market?
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Recommendations from State Regulators on Flood (NAIC)

• Overhaul NFIP and cease continuous extensions without meaningful reform

• Reforms should include ensuring retention of coverage, i.e. floodplain residents 

need to keep their policies over time 

• Implement federal program to financially aid qualifying households to obtain 

flood insurance

 One option is the offering of a means-tested voucher provided by the public 

sector to those who undertake cost effective mitigation measures

• Reverse FEMA’s position that consumers cannot receive a refund for unearned 

premiums if they cancel a NFIP policy mid-term in favor of a private policy

• Allow private insurance to meet the continuous coverage requirement so 

policyholders can return to NFIP if they non-renew their private insurance

• Endorse Floodsmart.gov as an efficient and effective resource for consumer 

education

• Implement and enforce meaningful building codes
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Recommendations learned from the Florida Experiment

• Allow greater flexibility as to broker requirements in the surplus line 

market particularly as to commercial flood policies, i.e., relax the “due 

diligence” requirements

• Provide an introductory window of time during which private flood 

insurance rates may be established through an expedited and 

streamlined rate filing process

• Allow rates to be on an informational basis initially only, enabling 

insurers to adjust prices in response to new information

• Cease or relax rules requiring insurers providing excess insurance on 

flood to notify regulators 30 days before writing flood insurance and 

requiring the filing of a plan of operation and financial projections 

• Issue certifications that a policy equals or exceeds coverage provided by 

NFIP
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Other Recommendations

• Educate property owners and potential owners

 Work with Real Estate data consolidators to have them identify 

neighborhoods that may have had floods or other significant CATs within 

last 5 years and post information on data sheets

i.e. Zillow listings 

• Offer flood protection as an endorsement to existing all-risk 

policies, resulting in participation by homeowners with very low to 

no flood risk (much like we see with earthquake coverage today)

• Advocate for more effective building codes

 The Build Strong Coalition supports the creation of a separate, federal 

financial incentive for states that adopt and enforce statewide building 

codes. 

 The Build Strong Coalition supports the creation of a federal financial 

incentive for states that adopt and enforce statewide building codes. 

States that do so will be eligible for greater post-event aid.
Sources:

National Mitigation Interments Strategy https://www.fema.gov/media-library-data/1565706308412-

19739d7deeca639415cc76c681cee531/NationalMitigationInvestmentStrategy.pdf

Billion Dollar Weather and Climate Disasters: Overview,” National Oceanic & Atmospheric 

Administration (NOAA) National Centers for Environmental Information (July 9, 2018), 

https://www.ncdc.noaa.gov/billions/. This figure does not include the billions of dollars of additional 

damage caused by less costly weather events.

39 Federal Insurance Office, U.S. Department of the Treasury, The Breadth and Scope of the Global 

Reinsurance Market and the Critical Role Such Market Plays in Supporting Insurance in the United 

States, at p. 39 (December 2014), 

https://www.treasury.gov/initiatives/fio/reports−and−notices/Documents/FIO%20−Reinsurance%20

Report.pdf (defining catastrophe bonds and other alternative reinsurance instruments).

Gissing, Andrew (2017) “Disaster Risk Management: Australian Challenges”: 

https://apfmag.mdmpublishing.com/disaster-risk-management-australian-challenges/

Holzheu, Thomas & Turner, Ginger (2017), “The Natural Catastrophe Protection Gap: Measurement, 

Root Causes and Ways of Addressing Underinsurance for Extreme Events”: 

https://econpapers.repec.org/article/palgpprii/v_3a43_3ay_3a2018_3ai_3a1_3ad_3a10.1057_5fs412

88-017-0075-y.htm

40Artemis, Catastrophe Bond and Insurance−Linked Securities Deal Directory: Embarcadero Re Ltd. 

(Series 2012−2), http://www.artemis.bm/deal_directory/embarcadero-re-ltd-series-2012-2/.

41 Artemis, Catastrophe Bond and Insurance−Linked Securities Deal Directory: Calypso Capital II Ltd. 

(Series 2013−1), http://www.artemis.bm/deal_directory/calypso−capital−ii−ltd−series−2013−1/.

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