Two decades of growth in insurance capacity have failed to close Asia-Pacific's insurance protection gap because many of the region's largest losses now arise through concentrations and dependencies that create interconnected risks, rather than the individual assets insurers have traditionally underwritten, according to a new report by Tokio Marine Kiln (TMK).
The 46-page new white paper, “Priced but not Understood” by the specialist insurer, reveals that the resulting gap between economic and insured losses reflects a mismatch between how many insurance products are designed and how real-world losses occur.
Capacity is not the constraint
Affordability and distribution explain part of the protection gap. In parts of Southeast and South Asia, low incomes and limited distribution impact uptake, and across emerging and developing markets in the region, only 5-7% of natural hazard losses were insured between 2000 and 2023, according to the OECD.
However, they do not explain the shortfall in markets such as Singapore, Taiwan and New Zealand, where capacity exists and buyers can generally secure coverage. TMK’s analysis finds that coverage lags the exposure it is meant to protect because:
- Nat CAT models built on Western loss experience have generally been applied to Asian peak zones without material adjustment.
- Policies have been designed around a version of risk that is no longer accurate.
TMK Asia Regional Managing Director Pavlos Spyropoulos said that access to capital has been here for all twenty years we have operated in Asia Pacific, but the way losses develop has changed.
“Risks increasingly cut across traditional product boundaries, while insurance products are still built around individual lines of business rather than the way risks interact in practice. Clients often cannot see the gap until a claim exposes it, and the clients who are the fastest to recover are those whose coverage was written around the loss,” he said.
Where policies stop and losses don’t
Insurance products also stop at boundaries that losses ignore. Cyber policies often exclude physical damage, while property policies increasingly restrict cyber-triggered loss, so a cyberattack on a factory’s control systems that damages machinery can fall between two lines, while limits can also fall short. Despite Asia Pacific accounting for one-third of the world’s cyber incidents, Aon reports that only 17% of information assets are insured in the region, compared to 60% of physical assets.
TMK sees three areas where the gap between exposure and available coverage is widest:
- Cyber-triggered property damage: where neither the cyber nor the property policy responds cleanly.
- The limit gap: where limits fall short of potential losses.
- Non-malicious outages and system failures: technological failures not driven by bad actors can cause losses across many insureds at once.
TMK Asia Cyber Underwriter Georgie Furness-Smith said that they often see multi-billion-dollar companies in APAC still buying extremely small limits compared to what they would see in Europe or North America. “But the risk is increasing; traditional cyber coverage excludes physical losses, and property policies exclude cyber. These are the three areas where we see the biggest protection gap,” she said.
The findings reflect themes TMK has observed through two decades of underwriting in Asia Pacific, where losses increasingly develop across multiple classes, geographies and dependencies rather than through isolated events. Recognising how these risks interact has been a central consideration in the development of the company's underwriting and product approach across the region.