Canadian Underwriter

How the protection gap affects Canada

March 15, 2023   by Alyssa DiSabatino

An insurance profession stands on the edge of a cliff, with a gap between another cliff.

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A growing global protection gap in NatCat and cyber will require more collaboration between public entities and private companies, lest consumers become increasingly uninsurable, the Global Federation of Insurance Associations (GFIA) said in a new report. 

The report identified a global protection gap of US$900 billion for cyber and US$100 billion for natural catastrophes. 

Gaps are growing globally and Canada is no exception, GFIA observed. 


The last decade’s NatCats (between 2011-2020) were the costliest in modern history , GFIA noted. In Canada, eight of the Top 10 highest insured loss years on record occurred between this period, according to IBC figures. 

In the last three decades, GFIA cited that Canada experienced US$19 billion dollars total in NatCat losses. Here’s how the figures break down per decade: 

  • 1991-2000: US$9 billion  
  • 2001-2010: US$1 billion 
  • 2011-2020: US$8 billion 

While the jump from the first decade to the last represents about a 13% decrease in insured NatCat loss, GFIA pointed out it’s crucial to recognize the jump in losses between the two most recent decades (2001-2010 and 2011-2020), represents about a 700% increase. 

What’s more, insured share of NatCat losses in Canada per decade are as follows:  

  • 1991-2000: 31% 
  • 2001-2010: 73% 
  • 2011-2020: 44% 

Interestingly, NatCat losses are expected to grow 5% per year globally, but the share of uninsured losses is expected to decrease in the next decade, GFIA said.  

“The protection gap and its development over time differ greatly between regions, as the share of insured losses depends on the level of insurance penetration (and therefore the country income group) and the types of events occurring in the region,” the report said. “For example, [in] North America insurers cover approximately 40% of NatCat losses…” 

Still, year-over-year, insured losses in Canada have been increasing. And 2022 now ranks as the third worst year for insured losses in Canadian history at $3.1 billion. Previously, losses exceeded $2 billion in 2020 and 2021, and $1.3 billion in 2019.  

However, while Canada’s a bigger risk than it used to be, it still represents a small portion of risk for reinsurers when compared to other countries. Reinsurers will not withdraw capacity in the Canadian market.  

GFIA made recommendations on ways to narrow the NatCat protection gap: 

  • Make efforts to educate the general public, businesses, communities and policyholders about the benefits of insurance. 
  • Ensure strong, and enforced, land-use controls and building codes are in place to promote the resilient construction of buildings and infrastructure and, where appropriate, the use of green or reconditioned materials. 
  • Promote close cooperation between public and private sectors to close the protection gap. 
  • Promote insurance products tailored to local needs, in particular by fostering microinsurance when appropriate. 
  • Support open reinsurance markets. This will ensure the maximum amount of capital is available to close NatCat protection gaps and support competitiveness and innovation. 
  • Do not create a regulatory environment that erects barriers to reinsurers’ ability to provide NatCat coverage and to innovate. 
  • Don’t apply excessive taxes and levies to insurance premiums that affect affordability of cover. 


GFIA also found the global cyber protection gap is growing. Canada’s no exception — especially following years of a cyber hard market, which reduced capacity and hardened underwriting for commercial clients. 

GFIA estimated there is a $900 billion cyber protection gap globally, with the economic impacts of cyber incidents being at least $1 trillion. 

While the report didn’t cite Canada-specific data, the country’s ongoing hard market in cyber has seen most insurers capping coverage somewhere between $3-million and $5-million, experts previously told Canadian Underwriter. 

However, high-hazard industries are likely to see their average costs for a cyber incident exceed their coverage limits. Healthcare cyber breach costs were around US$10 million in 2022. Financial services averaged US$5.97 million in cyber claims costs, followed by pharmaceuticals (US$5.01 million), technology (US$4.97 million) and energy (US$4.72 million). 

IBC’s own public awareness campaign, which found 44% of SMEs with fewer than 500 employees indicated they had no defences against cyberattacks and 60% had no cyber insurance, was cited in the report.  

To address this problem, IBC published a series of infographics, videos and social media communications to inform SMEs about cyber risk and cybersecurity measures, as well as its 2022 ‘Cyber Savvy’ campaign, which polled employees at SMEs on cybersecurity.  

They reported an increase in the cybersecurity market in Canada. In 2019, gross written premiums for cyber insurance were approximately C$135m (US$100m) and they increased to approximately C$222m in 2020, IBC reported.  

“While causality is hard to measure, this increase in awareness campaigns is likely to be one factor contributing to the overall increase in cybersecurity awareness, another one being the increase in the frequency and severity of attacks,” GFIA said. 

GFIA made recommendations for narrowing the cyber protection gap: 

  • Promote awareness of cyber risk and incentivize cyber-risk prevention. 
  • Promote improved cyber resilience, particularly among critical infrastructure firms and assets. 
  • Create a harmonized cyber-incident reporting framework to gain insights into the frequency and severity of major incidents. 
  • Facilitate sharing of aggregated data with insurers and academics for the purpose of risk modelling and risk mitigation. 
  • Do not prohibit ransomware payments. 


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