From crisis to coverage: Winning the war on under-insurance 

With unprecedented risks unfolding in a new age of digital transformation and a climate changed world, it’s the unknown coupled with demands for hyper-personalisation that is resulting in growing protection gaps, increased exposure to underinsurance and mounting pressure on insurers to rethink risk models, product design and customer engagement. 

The effects are already being felt: insurance has become unaffordable for many. In the UK alone, 2.6 million people don’t drive due to unaffordable car insurance, with premiums up 82% since 2021. The growing protection gap is no longer just a market trend, it’s a critical threat to financial resilience, public trust and social equity. 

If we don’t address it, we risk seeing: 

• Financial instability: Without adequate insurance, economic shocks become more severe, with governments and taxpayers left to bear the burden of uninsured losses. 

• Eroded trust in the insurance industry: With a growing perception that high-risk customers are being left behind, public scepticism is rising, drawing regulatory scrutiny and increasing pressure on the industry to bridge the protection gap.  

• Social inequality: For many in high-risk areas, often lower income communities, insurance is becoming harder to afford, deepening economic divides.  

This isn’t just an industry problem, it’s a collective one. Insurers, individuals, businesses, regulators, governments, we all have a role to play in closing the gap and ensuring the right cover reaches those who need it most. 

How did we get here? 

We’ve seen a clear shift in how we forecast and price risk in recent years, with more sophisticated models and data-driven approaches. But let’s be honest, greater accuracy hasn’t meant greater inclusion, and if insurance is to remain affordable and accessible, we need to keep pushing, challenging traditional models and finding better solutions. 

Broad risk pooling once made insurance viable for high-risk customers. That’s changed. Today, hyper-personalisation rewards low-risk individuals with cheaper premiums, while pushing those deemed ‘high-risk’ towards unaffordable coverage, amid a cost-of-living crisis.  

This shift coincides with a perfect storm of new and escalating threats. Climate risks are rising sharply. This year alone, Cyclone Alfred devastated parts of Australia, while wildfires in Los Angeles destroyed homes and infrastructure. Cyber threats are evolving faster than policies can adapt, exposing individuals and businesses to new forms of loss. And inflation is driving up claims’ costs, prompting many insurers to hike premiums or exit certain markets entirely. 

The result? A growing number of people and businesses are left unprotected. The Chair of Allianz Investment Management recently described this as a ‘climate-induced credit crunch’ – and the numbers back it up. In 2023, disasters caused $280 billion in losses, with 62% of those uninsured; and in 2024, less than half of natural disaster losses were insured. 

But where there’s pressure, there’s also opportunity. Insurers that adapt quickly, by rethinking product design, pricing strategies, and engagement models, won’t just bridge the protection gap, they’ll regain the trust of underserved customers and unlock long-term competitive advantage. 

So how should insurers protect the unprotected? 

The solutions 

1. Unlock new markets with innovative insurance solutions, e.g.: 

• Microinsurance: Expanding coverage to drive growth 
Microinsurance offers low-cost, on-demand, flexible plans, reaching underserved populations and new markets. In 2024, AXA Egypt partnered with Post for Investment to launch microinsurance, covering 12 million Egyptians with affordable policies. For insurers, it drives growth, brand loyalty and strengthens market presence. 

• Parametric insurance: Faster payouts, greater resilience 
Parametric insurance offers fast, predefined payouts based on triggers like wind speed or rainfall, eliminating traditional claims delays. In 2025, WTW and Global Parametrics made the first parametric payout to coffee farmers in Vietnam, automatically protecting farmers against adverse rainfall conditions. For insurers, it cuts administrative costs, improves payout efficiency and makes high-risk markets more viable. 

2. Strengthen risk mitigation to reduce claims, e.g.:  

• Gamified insurance: Rewarding safe behaviour 
Gamified products reward safe behaviours with lower premiums or cashback. Features like ‘social proofing’ encourage users to compare progress with friends, creating a community-driven approach to risk reduction and increasing engagement. UK-based YuLife exemplifies this, offering life insurance that rewards healthy habits, like walking or meditation, with points redeemable for real-world perks. 

• Incentivising preventative measures: Lowering risks, lowering costs 
Offering discounts for fire-resistant homes or enhanced cybersecurity incentivises proactive risk management. For instance, State Farm will offer a 6.3% discount in California for wildfire mitigation – incentivising property protection to reduce both the volume and severity of claims, ultimately lowering costs and premiums. 

3. Leverage advanced technologies, e.g.: 

• AI & data: Enhanced risk assessment 
AI and data improve pricing strategies and early identification of emerging risks, with 76% of insurance executives viewing technology as a key opportunity to address the 60% global protection gap. In 2024, ACRE Africa leveraged AI to analyse crop risks for smallholder farmers and streamline claims processing. 

• IoT sensors & predictive analytics: Real-time risk monitoring 
IoT sensors and predictive analytics allow continuous risk monitoring and real-time coverage adjustments, improving pricing accuracy and exposure management.

4. Expand reach with strategic partnerships, e.g.:  

• Public partnerships: Bridging gaps with governments 
Public partnerships enable insurers to work with governments to provide affordable coverage in underserved areas, reducing risk exposure and expanding customer bases. 

• Private partnerships: Integrating tech with banks 
Partnering with banks to embed AI-driven tools in apps helps customers manage insurance needs and nudges them to review coverage based on spending patterns, increasing engagement and simplifying sales. 

• Education-led partnerships: Partnering with universities, schools and colleges 
Collaborating with educational institutions such as universities bridges the knowledge gap and educates young people about insurance, building long-term brand loyalty. 

Conclusion: The future belongs to market shapers 

The rise of the ‘underinsured’ is becoming a pressing challenge for insurers as high-risk groups struggle to find affordable coverage. Failing to address this will lead to heightened financial instability, eroded trust in the insurance industry and worsening social inequality, leaving vulnerable communities exposed and deepening economic divides.  

But this is a challenge the industry has the power to reshape. Insurers that innovate, align pricing with accessibility and reimagine traditional coverage models will stay ahead. By adapting now, they won’t just future-proof their business, they’ll play a pivotal role in safeguarding customers in an increasingly uncertain world.