The world is undergoing a profound demographic shift. By 2050, one in six people globally will be over the age of 65 - up from one in eleven in 2019 - and by the end of the century it could be one in two.
In 2018, for the first time in history, the global population aged 65 and older outnumbered children under five.[1] People are living longer, but there are fewer young people to support them.[2] In many developed countries, aging is not only rapid but also spatially uneven, with rural and post-industrial areas seeing significant demographic imbalances. The demographic story is well known but its implications for insurance are less discussed.
Older people are more exposed because of limited mobility, generally poorer health conditions, reduced social networks and dependence on stretched care systems[3]. The 2003 European heatwave and the 2011 Tōhoku tsunami both showed how mortality rates rise sharply with age. In Japan, 77% of fatalities were older than 50, with over 46% aged 70 or above.
But the challenge is not only about vulnerability during crisis. It is also about what happens after. For decades, disaster planning and insurance markets have been built around the assumption of growth driven by increasing populations, expanding assets, and rising exposure. That assumption is breaking down. In towns that are losing people as well as wealth, the idea of “building back better” after a disaster often collides with demographic and economic realities.
At its core, the protection gap is about the shortfall between total economic losses and those that are insured. This gap is often discussed in the context of low-income countries or regions vulnerable to climate change. Still, and increasingly, a new class of underinsured communities is emerging: those that are older, smaller, and economically stagnant.
As populations decline and age, insurance penetration tends to fall[4]. Home values stagnate or decrease. Tax bases erode. Small businesses close or relocate. Insurance penetration declines as both demand and supply weaken. At the same time, infrastructure ages, hazard exposure remains high, and elderly residents rely on fragile public services. The result is a slow erosion of resilience, where the models built for growing economies no longer fit.
We already see this in practice. Insurers and reinsurers are already grappling with how to support communities that are simultaneously demographically vulnerable and economically unattractive from a traditional risk-pricing perspective. In wildfire-prone California, carriers have withdrawn from remote towns where risk levels and market size make coverage unviable. In these areas, small populations mean fewer policies to spread risk, limited premium volume to offset potential losses, and high exposure concentration makes it difficult for insurers to operate sustainably. In parts of coastal Britain, flood-exposed communities with low property values and aging populations face similar challenges.
There are, however, examples where governments and communities have chosen not to restore the past but to adapt to demographic and financial realities.
After the 2011 tsunami devastated dozens of small coastal communities, many of which were already experiencing population decline, Japan took a bold approach recognizing the challenges of aging and declining populations. In several towns, the government opted not to rebuild residential areas in the original tsunami zones, instead, funding large-scale relocations to higher ground and investing in smaller, more centralized towns designed to be accessible to aging residents and easier to defend against future disasters[5]. Risk concentration was reduced, exposure mapping became simpler and more accurate, and insurers were spared from having to underwrite high-risk rebuilt areas in future tsunami zones.
In the wake of the powerful 2012 earthquakes, municipalities across Emilia-Romagna, including rural and aging towns, needed to rebuilt. Recovery policies explicitly recognised the vulnerabilities of the region’s aging rural population. Instead of relying solely on mass displacement camps, the government provided Contributi di autonoma sistemazione (CAS) - direct housing grants that enabled families, including many elderly residents, to secure temporary accommodation close to their communities, preserving autonomy and social ties. In towns like Novi di Modena, collaborative planning workshops further aligned reconstruction with demographic needs, focussing on social infrastructure alongside physical rebuilding[6].
These measures demonstrated that recovery could be scaled and adapted in ways that support an aging demographic while maintaining insurability. Paradise, California, offered another version. After the Camp Fire destroyed most of the town in 2018, the instinct to rebuild ran up against questions of safety and insurability. Paradise did rebuild, but differently. Wildfire-resistant codes were enforced, relocation incentives were provided for vulnerable residents, and infrastructure investment was scaled to reflect a smaller population. While many insurers had exited, the stricter land-use and building standards allowed some to return based on reduced exposure.[7]
These cases suggest that “building back better” is not about retreat alone. It can be about aligning risk with demographic and financial reality and incorporating new climate adaptation measures.
For the insurance sector this opens three opportunities.
The wider lesson is that demographic change will shape the protection gap just as much as climate risk. Shrinking, aging communities are not simply smaller versions of growing ones. They need a different approach to recovery, resilience, and risk transfer. The insurance industry has a central role to play in ensuring that adaptation to demographic reality also means sustaining protection.
The demographic shifts we’re seeing aren’t just a backdrop; they’re a force that’s reshaping the fundamentals of the insurance industry. As communities age and shrink, the assumptions that have long guided risk transfer and recovery no longer hold. For insurers, this means rethinking where and how we operate.
In areas facing population decline, traditional growth-based models are becoming less viable. Insurers need to reassess their geographic exposure and consider whether specific markets remain feasible from a risk and resilience perspective. At the same time, there’s an opportunity to innovate. Pricing models can be redesigned to reflect not just hazard exposure, but how communities plan and adapt, rewarding those that invest in resilience, relocate from high-risk zones, or build more intelligent infrastructure.
Product design also needs to evolve. Aging populations bring different vulnerabilities, and insurance offerings should reflect that, whether it’s coverage for care systems, mobility challenges, or post-disaster relocation. And because many of these communities are under strain, insurers can’t go it alone. Working closely with governments to shape recovery finance, through tools like resilience bonds or contingent credit lines, can help align insurance incentives with broader adaptation strategies.
Finally, there’s a chance to re-enter markets that were previously considered uninsurable. If exposure is reduced through better planning or consolidation, insurers may find new opportunities to support communities in ways that are both sustainable and strategic.
This isn’t just about adjusting to demographic change; it’s about leading through it. The insurance industry plays a critical role in helping communities adapt, ensuring that protection remains possible even in places where traditional models no longer fit.
