Moody’s Warns Global Insurance Protection Gap Set to Widen as Growth Shifts to Emerging Markets

The global insurance protection gap is expected to widen in the coming years as economic growth increasingly shifts toward emerging markets, where insurance penetration remains relatively low and large portions of economic losses continue to go uninsured, according to a new report from Moody’s.

The ratings agency warned that the combination of expanding economic activity in developing economies and rising losses from natural disasters is creating a growing mismatch between total economic losses and insured losses worldwide, posing challenges for insurers, governments, businesses, and households alike.

According to the report, emerging economies generally experience larger insurance protection gaps than advanced markets due to limited availability of insurance products and the relatively high cost of coverage for many individuals and businesses. As a result, a significant share of losses caused by natural disasters and other risks remains outside the scope of insurance compensation.

While developed economies tend to benefit from broader insurance coverage and stronger purchasing power among households and corporations, Moody’s emphasized that protection gaps persist even in highly developed markets and vary significantly across regions, sectors, and risk categories.

The agency noted that insurance protection levels are influenced by multiple factors, including insurance penetration rates, product availability, affordability of premiums, and the nature of assets exposed to risk. Consequently, some industries and geographic areas enjoy extensive coverage while others remain largely uninsured.

Moody’s highlighted several examples demonstrating that economic development does not automatically translate into comprehensive insurance protection.

One notable case cited in the report was the 2014 South Napa earthquake in California, where more than 90% of total economic losses were reportedly uninsured. The high level of uninsured losses was attributed to limited earthquake insurance uptake and substantial deductibles within existing policies.

Conversely, some less-developed markets have achieved stronger protection in specific sectors. Moody’s pointed to Hurricane Melissa, which struck Jamaica in 2025, where relatively high insurance coverage among hotels and large businesses helped reduce uninsured losses despite limited protection among individual households.

The report also noted that insurance protection gaps can change rapidly following major disasters. Catastrophic events often increase public awareness of risk and encourage businesses and homeowners to purchase additional insurance coverage.

Germany was cited as an example of this trend. Demand for flood insurance has gradually increased as the country has experienced more frequent flooding events over the past two decades, particularly following the devastating floods of 2021.

However, Moody’s warned that the opposite effect can also occur. Repeated disasters within a short period may increase insurance costs and reduce insurers’ willingness to provide coverage in high-risk areas.

The agency highlighted parts of California, where successive wildfire seasons since 2017 have led to rising premiums and reduced availability of private insurance coverage. As a result, an increasing number of homeowners have turned to state-backed insurance programs as a last resort, despite concerns that policy limits may not fully cover reconstruction costs after a major loss.

Moody’s identified climate change and the shifting geographic distribution of natural disasters as key drivers behind the growing protection gap. Extreme weather events are increasingly affecting regions that historically faced lower levels of climate-related risk, leaving many communities underprepared and underinsured.

The report further warned that chronic climate-related threats—including water stress, prolonged droughts, and extreme heat waves—are generating larger and more frequent economic losses, many of which remain outside traditional insurance frameworks.

According to Moody’s, approximately 95% of losses associated with the European heatwave of 2025 were uninsured, underscoring the significant disparity between economic damages and insured claims arising from climate-related events.

Looking ahead, Moody’s expects the global protection gap to continue expanding even during periods without exceptional catastrophic events. The agency argues that structural shifts in economic growth, combined with escalating climate risks and affordability challenges, are likely to outpace improvements in insurance penetration.