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We talk a lot in insurance about putting the customer first. We aim to serve each individual person or business as best as possible to ensure they have the most appropriate coverage at the right time. 

But when we look at these individuals and businesses cumulatively, the obligation to better serve becomes only more weighty, where it is not only an obligation to the customer but to society and the economy as a whole. 

You guessed it - we’re talking about the protection gap.

What is the protection gap?

The ‘insurance protection gap’ or ‘underinsurance’ is the difference between the amount of insurance coverage that is economically beneficial and what is actually purchased.

According to a 2019 Swiss Re report, there is a global insurance protection gap of $1.2 trillion in three key risk pools: natural catastrophe, mortality, and health care (more than double the figures in the year 2000). 

The 2017 Protection Gap Study by the Life Insurance Association of Singapore (LIA) found that, in Singapore alone, there is an 80% protection gap for critical illness cover and a 20% gap for mortality protection. 

There are many causes of the protection gap including price and the quality of service. 


Further findings from the Life Insurance Association of Singapore in August 2019 showed that another main cause of the protection gap is consumer trust - people being cautious about insurance because of experiences and perceptions about the industry. 


Why is reducing the protection gap important? 

When there’s a misfortune, like a natural disaster or a health event, insurance provides support to people, societies and businesses through financial compensation. 

The protection gap leads to a severe lack of societal resilience where insurance would otherwise play a role in mitigating the impacts of natural disasters, pandemics or other adverse events (The Geneva Association).

How can InsurTech help?

Digital technology can go a long way in addressing the protection gap. In particular, it can address two general causes: affordability and quality of service. 

Affordability

As mentioned above, one of the main causes of the protection gap is the cost of insurance. Premium payments deter many potential buyers from seeking insurance cover. 

According to the Geneva Association, transaction costs (including claims settlement, acquisition and administration) contribute to approximately 1/3 of premium payments. InsurTech can help reduce high transaction costs for insurers - reducing premiums and allowing for an increased adoption of insurance, therefore reducing the protection gap.

Quality of service

A 2018 Geneva Association report cites EY in noting that service and experiential factors, such as “easy to understand, clear communications” and “being easy to deal with,” are among the most relevant drivers of insurance purchasing decisions and are almost as important as price and scope of coverage. 

Ease of purchase is thus an important factor in insurance buying behaviour. If insurance is seen as an abstract and intangible concept it is not properly ‘sold’, and coverage gaps rise. 

Digitisation of insurance sales enables a hassle-free customer experience and more regular communication. By changing the way customers learn about insurance propositions and then buy insurance, we can increase lead conversion and therefore contribute to a reduction in the protection gap.


Conclusion

Digital technology has the capacity to contribute greatly to narrowing the protection gap by making insurance more affordable, easy to understand, and buy.

Insurers can utilise InsurTech to develop more affordable and customer-centric products and deliver better quality service. By doing so, insurers are not only serving the individual customer better, but society as a whole. 

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