The mortality protection gap, defined as the disparity between the necessary resources required to maintain a household’s living standards and the available financial assets, life insurance coverage, and social security benefits, has reached an alarming all-time high in 2022, according to Swiss Re Institute’s Sigma Report.
The global mortality protection gap amounted to a staggering USD 406 billion in 2022, representing a 1.5% increase from the previous year and a USD 49 billion rise compared to a decade ago.
The mortality resilience index (I-RI) stands at 43.4%, reflecting a significant shortfall in household assets of approximately 57% (see Life Insurance Value Chain).
The widening gap is attributed to unfavourable economic conditions, including high inflation, eroding purchasing power, surging wages necessitating greater protection, and volatile financial markets depleting household assets.
The mortality resilience has either plateaued or declined in select advanced economies in Europe, the Middle East, and Asia Pacific (EMEA and APAC) regions due to the rapid growth of household debt (see Global Life Insurance Industry in 2023).
Countries like Korea have witnessed a remarkable 28-percentage-point increase in household debt as a percentage of GDP since 2012, reaching 106%.
Similarly, France has experienced an 11-percentage-point increase, reaching 67%.
In the United States, a protection gap of USD 70 billion in 2022, coupled with an extended period of low interest rates, has negatively impacted life insurers’ investment portfolios, leading to industry consolidation and reduced life insurance coverage among American adults (52% compared to 63% in 2011).
Emerging markets, with a mortality resilience rate approximately half that of advanced markets, face their own challenges.
Stagnant or declining social security benefits in advanced EMEA nations have contributed to widening protection gaps.
In North America, mortality resilience has remained relatively unchanged as the need for income replacement has matched the growth in life insurance coverage (see 10 Dos & Don’ts Of Getting Your First Life Insurance Policy).
The mortality protection gap in emerging APAC countries has widened in absolute terms since 2012, driven by economic development and increased income replacement needs.
China alone accounts for 55% (USD 82 billion) of the protection gap in the region. Nevertheless, relative improvements in the mortality resilience index have been observed in emerging APAC due to progress made by the life insurance industry in narrowing the gap, coupled with advancements in social security systems.
Latin America has witnessed a USD 26 billion protection gap, with higher growth in life insurance, averaging around 5% annually since 2012, offsetting stagnant income needs and resulting in an increase in the resilience index.
Notably, Brazil’s mortality I-RI has risen by more than 20 percentage points since 2012, reaching an estimated 57% in 2022.
The report underscores the significant role played by life insurance in providing protection in most countries, particularly those with higher resilience rates. For instance, in countries like Canada and France, life insurance covers more than half of the protection needs (53% and 51%, respectively).
Edited by Nataly Kramer