March 2023Global Insurance Report 2023: Closing the personal P&C protection gapDespite overall growth, personal P&C lines are losing market relevance and facing a growing protection gap, with a clear dichotomy between local winners and losers. What’s next?This report is a collaborative effort by Selma Belghiti, Ana Brito, Kia Javanmardian, José Miguel Novo, Sirus Ramezani, and Ashish Srivastava, representing views from McKinsey’s Insurance Practice.Global Insurance Report 2023: Closing the personal P&C protection gap ContentsiiIntroduction 01Personal P&C industry landscape07Challenges facing personal P&C insurance13Road map for personal P&C in 2023 and beyond23Getting started IntroductionDespite a slowdown during the height of the pandemic, personal property and casualty (P&C) insurance has seen annual growth of 3 percent since 2019. Personal lines still represent more than half of global P&C gross written premiums (GWP), but a growing protection gap in both developed and developing countries indicates that insurers struggle to design products fit for the evolving and emerging risks that modern personal-lines consumers demand. The protection gap has a number of direct and indirect causes. In developed economies, customers’ personal P&C insurance needs are changing significantly and rapidly—particularly when it comes to motor insurance, given that connected cars and the sharing economy are transforming pricing models and risk profiles. Extreme weather events are wreaking havoc, with increased flooding, tropical storms, wildfires, and droughts challenging traditional risk assessment and underwriting models in property insurance. Cybersecurity risk is on the rise, and many insurers are struggling to properly quantify risk exposure, adjust terms and conditions, and consequently win the conviction of reinsurance capacity. And e-commerce is becoming indispensable,1 bringing a heightened risk of online fraud and theft. Developing economies’ populations also remain underinsured, with premiums largely for 1 “Becoming indispensable: Moving past e-commerce to NeXT commerce,” McKinsey, November 15, 2022.2 McKinsey Global Insurance Pools.3 To read the first two chapters on life insurance and P&C commercial insurance, see “Global Insurance Report 2023: Reimagining life insurance,” McKinsey, November 16, 2020; and “Global Insurance Report 2023: Expanding commercial P&C’s market relevance,” McKinsey, February 16, 2023.nonmandatory products such as homeowners’ insurance still representing a small portion of people’s income—mostly driven by limited purchasing power and a lack of awareness about the benefits of personal P&C protection. In Latin America, personal property insurance as a portion of income is just 0.12 percent of GDP, compared with 0.32 percent for Western Europe.2The industry is growing overall, but a more granular assessment shows that locally focused scale largely defines a given personal P&C insurer’s competitive stance. Regional winners are likely to continue to retain market share, benefiting from the capabilities they employed to achieve their current leadership position and from their investment capacity going forward. More globally, personal P&C insurance will join all industries in contending with inflation in the near term, putting additional pressure on margins. Inflation will also have clear implications for traditional operating models—specifically by requiring faster feedback loops between the claims, actuarial, and pricing functions. Insurers must recalibrate their products, distribution, and technical models for a customer base and an employee pool with higher standards than ever.This is the third and final chapter of McKinsey’s Global Insurance Report 2023.3 iiGlobal Insurance Report 2023: Closing the personal P&C protection gap Insurers must recalibrate their products, distribution, and technical models for a customer base and an employee pool with higher standards than ever. In 2022, the insurance industry surpassed $6.5 trillion in GWP, with P&C representing almost one-third of total revenues. The premium volumes of both the global insurance industry and P&C have recovered from the pandemic (Exhibit 1); however, global insurance profits still have yet to surpass prepandemic levels, and 2022 P&C profits lagged 2019 levels by about 10 percent, suffering from acute inflation.Personal P&C insurance saw an average three-year CAGR of 3 percent from 2019 to 2022, compared with 1 percent during the height of the 1Personal P&C industry landscape1Global Insurance Report 2023: Closing the personal P&C protection gap Exhibit 1fiffi–ffi  – Global insurance gross written premiums (GWP), $ billions1 Note: 2022 is an estimate. Figures may not sum, because of rounding.12021 average xed exchange rate used.2Per annum. Source: McKinsey Global Insurance PoolsThe overall industry has been growing, but the growth of personal property and casualty lines has lagged