COVID-19 to have knock-on effect on insurance; emerging economies to suffer worst blow

Mapfre Economic Research expects an unprecedented impact on the global economic activity due to the COVID-19 pandemic, particularly in the emerging markets, with a knock-on effect on insurance. The projections are a sharp contrast from its  initial forecast.

In a major turnaround from the earlier Outlook 2020 report, where economic growth was forecast at 3.1 percent in 2020 for the global economy, with a stronger performance from emerging markets, Mapfre has said that emerging economies are now likely to suffer more than developed economies.

Under the new criteria, which will be applied throughout the crisis, the experts expect the global economy to contract between 3 percent and 8.2 percent this year.

Mapfre warned of the "worst economic crises of the last forty years" that will see sharp declines in GDP leading to significant setbacks in insurance premiums at the aggregate level, in both emerging and developed markets.

However, the effects will be uneven across the different lines of insurance business. Automobile, business, industrial, and life insurance are expected to take the hardest hit and will suffer the short-term consequences of the crisis.

It said health insurance remains "very resilient" in these situations, even behaving anti-cyclically at the worst times of the crisis.

Homeowners insurance tends to slow down, without experiencing large setbacks.

For traditional life savings and annuity insurance, the most unfavourable effect (with structural and medium- to long-term implications) is the low-interest-rate environment. "This was previously a problem for economies in developed countries, but is now spreading to emerging markets," it noted.

The report stated that “the economic cost is enormous, which we are currently seeing due to supply disruptions, risk aversion, and the potential financial implications.”