India’s insurance gap widens despite deeper penetration, says study

Insurance penetration has improved globally during the past six years, and with the growing incidence of new risks related to climate change and the cyber world, the insurance gap has decreased, finds a study by Lloyd’s of London.

Global ‘under-insurance’ or ‘insurance gap’ stands at $162.5 billion as of 2018 as against $168 billion in 2012, which is a reduction of 3 per cent over the last six years.

While the insurance gap is a measure of the total value of assets divided by the value of assets that are protected by an insurance cover, insurance penetration is the ratio of the total premium underwritten in a particular year to the GDP of the country or industry. ‘Penetration’ states the value of total premiums in relation to GDP, while ‘Gap’ measures the total cost not covered by insurance policies.


Insurance Penetration (% of GDP)






Vietnam 0.9








Japan 2.3


United Kingdom



France 1.9


Hong Kong



United States



New Zealand



Table 1 shows the change in insurance penetration among some of the leading economies.

The report by Lloyd’s of London and the UK’s Centre for Economics and Business Research, which analysed insurance trends in the non-life space across countries, found that emerging economies accounted for $160 billion or 96 per cent of the total global insurance protection gap.

In India, the insurance gap has widened from $19.7 billion in 2012 to $27 billion in 2018, even though non-life insurance penetration has improved marginally from 0.7 per cent of Gross Domestic Product (GDP) in 2012 to 0.9 per cent as of 2018.

China has the biggest insurance gap at $76.4 billion, followed by India and Indonesia at $14.6 billion, in absolute terms.

Insurance Penetration (% of GDP)
Real Estate 0.74
Transportation and Logistics 0.6
Agriculture, Forestry and Fishing 0.58
Financial and Insurance 0.49
Wholesale and Retail 0.46
Education 0.18
Information and Communication 0.17
Manufacturing 0.17

Table 2 shows the insurance penetration levels across major industries. While industries like real-estate, transportation and logistics, agriculture and financial services have strong insurance protection, information technology, education and manufacturing sectors have the least insurance penetration.

“Large losses serve as a reminder of the value of insurance and the need to safeguard against future risk. However, an adverse reaction can also be caused as catastrophes lead to higher insurance pricing. Companies, especially those in highly competitive sectors, may take the view these products are no longer as affordable, meaning certain sectors neglect to take up sufficient cover just as they need it most,” states the report.

One important and significant finding is that between 2012 and 2018, there has been an increased incidence in natural disaster-related incidents, which has had a large impact on the insurance industry.

Country Disaster Cost of Damage Insurance Coverage

Insurance Gap

Germany Flood 2013 17.4 4.4


Japan Earthquake 2016 27 5


France Frost 2017 4.2 1


Table 3 lists some of the largest natural disasters to have taken place globally, in recent times, and illustrates the need for larger insurance covers and therefore higher levels of insurance penetration.

For example, the 2016 earthquake in Japan caused a total economic loss of $27 billion, but only $5 billion of these costs could be recovered through insurance policies. Therefore, Japan, in this case, suffered from an insurance gap of over $22 billion.

The annual GDP at risk is highest from flooding, which has become the most common natural disaster in recent years is estimated at $42.9 billion, followed by earthquake at $33.9 billion and drought at $8.9 billion, according Lloyd’s City Risk Index.

There have been more than 600 floods in Asia since 2008, with four of the most serious incidents occurring in China. On average across the top 10 floods, just 15 per cent of the total losses incurred was covered by insurance companies, notes the report.

“One of the key reasons for this low level of insurance is that as the number of natural catastrophes such as flooding increase, so do insurance prices. As a result, businesses, governments and households less at risk are deterred from taking out insurance. It is also the case that many homeowners believe their property is insured by their regular home insurance policies, which is rarely the case,” says the report titled A world at risk- Closing the insurance gap.

Bangladesh has the highest expected losses from natural disasters, with an expected annual loss of 0.8 per cent of GDP and an insurance gap of over $6 billion.

Combined with Bangladesh’s low insurance penetration levels, this leaves the country highly exposed to the impacts of natural catastrophes. New Zealand is number two on the list, with an expected annual loss of 0.7 per cent of GDP, however, its high insurance penetration levels means it remains well protected, gap states the report.

In conclusion, Lloyd’s also states that the insurance gap in relation cyber-crime and cyber-security is increasing annually which is a cause of concern. In 2017, cyber-attacks cost businesses between $ 445 billion and $ 608 billion in losses.

The reason for the low penetration of cyber-insurance, the report notes, is that it is hard to quantify the potential revenue loss and data loss given the limited historical data, and that most companies do not understand the growing universe of cyber-threats.

However, Lloyd’s expects a pick-up in cyber insurance covers from both companies and individuals, as European firms and many emerging economies are set to implement personal data protection and cybersecurity laws. (Source: Business Standard)