The gap between people's needs if they became critically ill or disabled and what they would have is €750bn across 13 European & Middle Eastern countries, a report from Swiss Re has found.
Assuming people would need a 60% replacement income if unable to work, the report found that at current levels replacement income would be 40%.
Swiss Re warned that with the welfare state providing fewer benefits this figure is likely to drop further in the coming years.
Swiss Re's European Insurance Report 2015 surveyed 13,000 people across 13 countries.
The report also highlights the challenges facing the protection system posed by changing demographics and rising costs.
The need of the industry to develop greater understanding of how, when and why people take on private cover is also highlighted in the report.
Bruce Hodkinson, European head of life and health reinsurance at Swiss Re, said: "Although people in the survey were aware of the potential shock that a sudden disability or illness could have for them financially, there are still many people without enough protection and who are reliant on state welfare."
He added: "However, states are reducing their welfare systems as ageing populations and increasing medical costs put pressure on their budgets.
"The insurance industry has the task to enable the shift from state provision to individual responsibility."
Jean-Jacques Henchoz, chief executive officer reinsurance EMEA at Swiss Re, said: "It's not enough to understand the economic arguments for providing health protection.
"People don't buy on a one-size-fits-all basis throughout their lives but will want different levels of cover and have different concerns as they move through their lives.
"Our job as the re/insurers is to ensure that we are meeting their needs."
Further Reading:
Protection market grows by 4.1% - Swiss Re
