Trillion dollar opportunity as protection gap grows, says Swiss Re

The insurance industry has a huge opportunity to boost the world’s resilience to catastrophe losses a role that is more important than ever since the global economy has less capacity to absorb a shock than it did in 2007.

Those are two of the key findings from the latest sigma study undertaken by Swiss Re in conjunction with the London School of Economics. The study also pointed out growing protection gaps in key areas.

Swiss Re’s Macroeconomic Resilience Indices say the world economy is now less resilient than at any time since the financial crisis of 2007.

Swiss Re said one of the main reasons for lower resilience was the exhaustion of monetary policy options in many developed economies, and a challenging operating environment for the banking sector, even as financial institutions are stronger since the crisis.

The sigma report said that “ultra-accommodative” monetary policy over the past years leaves limited future room to manoeuvre for central banks, while increasing their dependence on financial markets. Coupled with insufficient progress on structural reforms, this is likely to result in more protracted recessions in the future.

Switzerland was the most resilient country, said the study, followed by Canada and then the US.

Separately, the study considered how insurance helps households withstand the following shock events: natural catastrophes; death of a household’s main earner; and healthcare spending. It found that the protection gap for the three risk areas combined more than doubled between 2000 and 2018 to $1.2 trillion, a record high.

However, insurance resilience, measured by insurance needed versus that available, has improved in these three core risk areas in most regions since 2000.
The re/insurance market promotes macroeconomic stability, said Swiss Re.

“It is a trillion-dollar opportunity for the insurance industry,” said Jerome Jean Haegeli, Swiss Re’s group chief economist.

“The industry has largely kept pace with growing loss potentials and can do more to improve resilience. Emerging markets, in particular, benefit more strongly from insurance protection than mature economies, which often have greater access to alternative sources of funding,” he said.