The global insurance protection gap, or the gap between economic losses and those that are insured, widened in 2020 as pandemic related effects drove global macroeconomic resilience to decline by 18%, according to a measure by reinsurance firm Swiss Re.
Swiss Re Institute has published its Resilience Index, which shows that the COVID-19 pandemic reduced global macroeconomic resilience by close to a fifth in 2020.
Global economic growth is expected to recover strongly in 2021, after the pandemic-induced recession in 2020, thee reinsurance firm said, which it expects will help to build macroeconomic resilience again.
However, Swiss Re warns that “there will not be a return to pre-COVID-19 levels of resilience in 2021.”
The global insurance protection gap reached a new high of around USD 1.4 trillion in 2020, Swiss Re’s analysis shows, however the reinsurance firm believes that global insurance resilience will return to growth in 2021, citing increased risk awareness as a key driver.
Jérôme Haegeli, Swiss Re Group Chief Economist, explained, “Our study clearly shows that economic resilience pays off. Advanced regions benefitted from both stronger levels of macroeconomic resilience and health insurance resilience than their emerging counterparts. However, to restore macroeconomic resilience and drive long-term growth, deep structural reforms are needed.
“The global pandemic has accentuated the gap between the rich and poor. It has laid bare the need for governments to focus on rebuilding and promoting social cohesion. Social equity – and at its heart, creating equal opportunities for all – will be a defining feature of a more resilient world.
“The global insurance protection gap reached a new high of USD 1.4 trillion. Closing this gap would both support long-term economic stability and increase society’s capacity to absorb shocks. Making insurance more widely available and affordable will be essential. But re/insurers and leaders in business and government must make resilience a shared priority.”
Swiss Re believes that structural reform is essential to rebuild resilience around the world, saying this can, “build long-term growth prospects and replenish macroeconomic resilience.”
Swiss Re notes that the pandemic has driven people to, in some cases, think differently about insurance and risk protection.
“For many people, the COVID-19 experience has highlighted the importance of risk protection covers,” the reinsurance firm explained.
Interestingly, out of the insurance resilience areas measured by protection gaps, it is catastrophe insurance that remains the largest.
Swiss Re said that, “Global natural catastrophe resilience remains the lowest of all, with the global index reading at 24% in 2020, meaning that 76% of these protection needs around the world are uninsured.”
That demonstrates the significant opportunity to provide more efficient risk capital and reinsurance to support expanding coverage of global catastrophe risks, a key area the insurance-linked securities (ILS) market could assist with.