Insurers Face Worsening Protection Gaps As Rate-Driven Growth Proves Unsustainable
Protection gaps across all lines of the insurance business are expected to widen through 2030, as insurers struggle with unsustainable rate-driven growth, according to new research by Bain & Company.
Protection gaps across all lines of the insurance business are expected to widen through 2030, as insurers struggle with unsustainable rate-driven growth, according to new research by Bain & Company.
Bain’s report, Bridging the Protection Gap: Affordability, Access, and Risk Prevention, highlights significant challenges in the insurance industry, particularly in pricing risk profitably, according to FF News.
The widening gaps stem from evolving risks, including the rising frequency of natural disasters and cyberattacks, unaffordable property premiums, and declining demand for life insurance—particularly among younger generations.
The report estimates that by 2030, only 25 per cent to 33 per cent of natural disaster-related damages will be covered by insurance, while mortality coverage could fall below 50 per cent.
“Bolstered by unsustainable tailwinds, insurance companies find themselves at an inflection point,” Bain’s global insurance head Sean O’Neill said. “Over the past couple of years, we’ve seen rate increases in the property and casualty sector and interest-rate–driven annuity sales in the life sector. While capital and balance sheets remain reasonably strong, several challenges have emerged, and profitability has come under pressure for many lines of the insurance business. Insurers will need to be proactive and act now if they wish to navigate these impacts.”
Investors remain skeptical about US insurers’ future earnings potential, while showing greater confidence in emerging market life insurers, according to Bain.
Valuations of US life insurers reflect long-term earnings growth concerns, with indications of declining profitability or hidden losses yet to emerge.
Similarly, property and casualty (P&C) insurers face uncertainty due to questions surrounding the sustainability of recent price increases and potential increases in claims.
The growing threat of cyber risks in an increasingly digital and data-driven world is another pressing issue for insurers.
Global ransomware-related damages are projected to exceed US$250bn within six years, prompting Bain to caution that individual insurers’ actions alone will be insufficient to address future risks.
“Throughout the insurance sector, risk prevention is an increasingly critical component of strategy,” said partner in Bain’s Insurance practice Andrew Schwedel. “Risks for catastrophic cyber events will need to be shared, and public-private partnerships will need to expand to promote prevention. Risk-sharing will also likely require additional capacity from excess and surplus carriers, reinsurers, and alternative capital providers.”
Despite the challenges, insurers have opportunities to leverage technological advancements. Bain notes that the rapid proliferation of unstructured data and the rise of AI are reshaping the industry, presenting insurers with ways to improve affordability and access.
AI-driven advancements are expected to drive a 10 per cent–15 per cent revenue uplift, up to 30 per cent in operating expense savings, and a 30 per cent–50 per cent reduction in P&C leakage—losses arising from inefficiencies, fraud, or claim-handling errors.
