In the past few years the insurance community has paid increasing attention to the “protection gap”—the extent to which significant property losses are not covered by insurance. Because insurance plays an important economic and social role in many ways, the protection gap is significant to individuals, firms, the communities in which they reside or operate, and the economy as a whole. RCRR’s Protection Gap project addresses the protection gap in property insurance in the United States.
The concept of a protection gap raises several issues:
What is a protection gap?
Different definitions of the protection gap map the difference between losses that are insured and losses that could or should be insured.
What protection gaps exist in property insurance and what causes them?
The protection gap takes several forms.
What causes protection gaps? What solutions are there for protection gaps?
Property insurance primarily is bought and sold on the private market, so protection gaps arise when potential purchasers are unable or unwilling to buy available insurance that is adequate to their needs, or when imperfections in the market limit the optimal, effective distribution or purchase of such insurance.
The insurance market, like all markets in developed economies, is constituted and regulated by government. Protection gaps arise when government regulation fails to correct for market failures and to supplement the operation of the market in the service of nonmarket goals.
Therefore, protection gaps can be addressed both by market and regulatory solutions.
For more, see Jay M. Feinman, The Protection Gap in Homeowners Insurance: