APAC catastrophe gap persists as cover stays unaffordable

Affordability remains the main barrier as catastrophe risks stay underinsured despite advances in modelling and available insurance capacity.

Asia-Pacific’s catastrophe protection gap is unlikely to narrow significantly through traditional insurance alone, with affordability continuing to leave large portions of disaster losses uninsured.

Insurers covered just US$1b of US$10b in regional catastrophe losses in the first half, whilst the protection gap remained around 90%, according to Aon.

Tom Mortlock, Head of Climate Analytics for Asia-Pacific at Aon, said lower incomes remain a major constraint because insurance penetration tends to increase alongside income. The region’s exposure to cyclones and floods also creates accumulation risks because disasters can affect large populations simultaneously.

Climate change is adding to the risk profile of typhoons and floods whilst increasing exposure to emerging perils such as heat and wildfire.

Closing the gap will therefore require measures beyond conventional catastrophe insurance.

“If we're really going to make a dent in the catastrophe protection gap across Asia-Pacific, public-private partnerships will be critical,” Mortlock said.

Parametric insurance and microinsurance could also complement traditional coverage. However, Mortlock said governments and markets need to prioritise risk reduction through hazard mitigation, development controls, and stronger building standards.

Affordability also shapes how insurers add capacity. Mortlock challenged the premise that catastrophe risks are becoming harder to price, saying advances in modelling have improved insurers’ understanding of such risks and that sufficient capital exists to meet growing capacity requirements.

The problem is that catastrophe risks in many emerging Asian markets may currently be underpriced because technical pricing is constrained by what customers can afford.

“I certainly wouldn't frame this as a data problem,” Mortlock said.

More granular catastrophe analytics could help insurers support underserved communities, but Mortlock said these tools would not resolve the underlying protection gap alone.

Long-term progress will depend on combining non-traditional insurance with risk reduction and income growth, allowing more households and businesses to obtain financially sustainable catastrophe protection.