The Big Question: In a new era of risk can insurers close the protection gap?

A new report published this week has warned the insurance industry will need to combine in a way it has never been asked to do before if it is to reduce the ever increasing widening of the global protection gap.

That gap has been estimated at $2.5 trillion and according to a new report by the London & International Insurance Brokers’ Association (LIIBA) it is being driven by four major trends: rising digital dependency, intensifying climate volatility, growing geopolitical instability, and the dominance of intangible assets such as data and intellectual property.

It warned that together, these emerging risks are leaving businesses exposed in areas where traditional insurance has failed to keep pace. There are concerns that the consequences of this innovation gap are already visible and that visibility will only increase.

The LIIBA report comes after the International Underwriting Association held events in both London and Singapore where it highlighted in an increasingly interconnected world, the challenges transcend borders, industries and sectors.

They say these global risks demand a unified response, and a collaboration rooted in open communication, collaboration and shared innovation.

What is clear is that in a world of completely new risks the industry will require new solutions to ensure the unforeseen challenges do not become the unassailable.

Lee Williams, Head of AdvantageGo

CEO of the London & International Insurance Brokers’ Association (LIIBA), Christopher Croft says specialty brokers are critical to closing the world’s widening protection gap enabling the insurance industry to keep pace with emerging risks.

Talking about the report, the results of which he presented this week to a meeting of regulators in the USA, Croft believes his membership will hold the key to success or failure.

“This research confirms that specialty brokers are the innovation engine of the insurance industry,” he explains. “They identify risks before they are widely understood, build the data that makes them insurable, and work with clients and underwriters to design solutions that drive resilience and growth. Closing the protection gap, however, requires more than incremental change – it demands a transformation in how risk is understood, mitigated and transferred, with brokers at the centre of that shift.”

However he says that the speciality broking sector has always had an uneasy relationship with regulators who are keen to simplify processes.

“I do not think that specialty brokers and the role we play is fully understood by regulators or government,” Croft explains.

The key Croft says will be the industry’s ability to innovate; he fears regulators may well be a hurdle in achieving that aim.

“Regulators view a market where there are a number of intermediaries as a cause for concern,” he adds. “However, if you look at medicine, if you are ill you will go to your doctor who will have a general knowledge and if there is a need for specialist knowledge you will; be referred. The same is true with insurance if the risk is too complex for a retail broker, they will come to the specialist intermediary to find a solution.

“We have comparisons with the technology sector which has significant capacity providers and the likes of Accenture which carry out the role of intermediary.

“However they have a fast fail mentality which allows companies to look to innovate and the regulators understand the need for such a mentality.

Croft continues:“For insurers or brokers if we fail to innovate at pace, the consequences are profound: the protection gap will continue to grow, leaving businesses exposed, investment constrained and economies more vulnerable. Closing that gap is not just an insurance issue — it is a matter of economic prosperity.”

“The aim of our report, The Innovation Imperative: Why Brokers Matter More Than Ever, is to begin a very much needed conversation across the industry. As an association we will be looking to talk to regulators, market associations and insurers to highlight the need for new solutions, the need for the ability to innovate at pace, and the part we can play.”

He adds: “We have said to insurers that we need to have greater collaboration and as an industry greater data sharing if we are to create the solutions which will not only reduce the protection gap but also meet the challenges of future risks.”

Croft concluded: “Specialty brokers are not just intermediaries; they are architects of solutions to the risks of the future. London, with its scale, expertise and history of innovation, has a unique opportunity to lead this charge. But progress is not optional. If we fail to act, the innovation gap will widen, the protection gap will grow, and economies will be left more vulnerable.

“London’s role is important, but this is not simply a London issue. We already access a wide range of international capacity, and this is a global challenge.

“We are calling for regulators, governments, insurers and brokers to work together to break down barriers, empower innovation and collaboration. If we succeed, we will strengthen resilience, unlock investment and ensure London remains the world’s centre of insurance innovation for the decades ahead.”