Michel Says Closing Protection Gap Needs Market Design, Not Just Capital, as Risks Outpace Institutions
Updated
Updated · Artemis.bm · Jul 15
Michel Says Closing Protection Gap Needs Market Design, Not Just Capital, as Risks Outpace Institutions
1 articles · Updated · Artemis.bm · Jul 15
Summary
Gero Michel’s new paper argues the widening protection gap reflects an adaptation failure, not a capital shortage, with insurance and capital-market structures lagging fast-changing cyber, AI, climate and supply-chain risks.
Michel says scalable risk transfer needs globally compatible standards for products, data and legal frameworks because investors will not fund risks at scale without credible models, legal certainty, governance and repeatable structures.
Catastrophe bonds show what works: they scaled through transparent structures, credible analytics and investable formats, while most innovation has stayed focused on existing peak-catastrophe and reinsurance risks rather than underserved emerging or intangible exposures.
Large capital pools still struggle to enter insurance because liabilities can run for decades, packaging costs are high, and a translation gap persists between insurers’ underwriting culture and investors’ liquidity, collateral and mark-to-market demands.
Michel concludes closing the gap will require active market creation—standardized risk structures, parametric and modular products, shared data frameworks, digital distribution and targeted public support—rather than simply mobilizing more capital.
Is the insurance 'adaptation gap' a failure to innovate, or a rational retreat from risks that are simply uninsurable?
With legacy insurers retreating from AI risks, can new AI-native insurance models truly close the growing coverage gap for businesses?
Closing the $1.86 Trillion Global Protection Gap: Drivers, Barriers, and Innovations in Insurance for 2025 and Beyond
Overview
The global protection gap is widening, highlighting how communities and businesses lack adequate financial safeguards against increasingly frequent and severe events. This gap is a critical indicator of societal vulnerability and poses significant challenges to global resilience and economic stability. Recent events, such as the unprecedented flooding and rainfall during the 2024 South Asian monsoon season, exposed significant underinsurance and widespread disruption in major urban centers. Inadequate coverage leads to substantial economic and social risks, while modern cyberattacks are becoming more systemic, further complicating the landscape and underscoring the urgent need for innovative insurance solutions.