Zombies, inequality and climate change: Swiss Re warns on post-pandemic risks
From zombie companies to growing inequality to climate change to the dangers of restarting under-maintained industrial operations – the post-pandemic world will contain many risks that insurers need to better understand.
That is according to Swiss Re's SONAR 2021: New Emerging Risks Insights identified the threats that will shape the future post-COVID-19 risk landscape.
These emerging risks range from the unintended consequences of government interventions through to the dangers of restarting undermaintained industrial facilities. The report also highlighted the urgent need to decarbonise the global economy, especially in the area of urban transport.
Patrick Raaflaub, Swiss Re's group chief risk officer, said: "When COVID-19 emerged in late 2019, few could have predicted the magnitude of its impact. Many of the actions taken to mitigate the pandemic have themselves created new risks, from the widening inequality gap to the dangers of restarting under-maintained industrial operations.
“As re/insurers, it is essential that we have the best possible understanding of these emerging risks. It is also important to remain vigilant on the emerging risks that are already known – especially regarding climate change – as these will impact us for years to come."
Income inequality and the growing gap between rich and poor COVID-19 lockdowns widened the gap between rich and poor. While many white-collar workers were able to move to home offices and continue their work, lower-wage face-to-face service sectors such as retail, gastronomy and tourism experienced high unemployment. In the US, for example, leisure and hospitality unemployment rose from 5 percent at the start of 2020 to 40 percent in April 2020. In the UK, unemployment in these sectors peaked at 10.9 percent in the three months to January 2021. This was significantly lower than the US owing to the UK government's job retention scheme.
Swiss Re highlighted the impact on younger generations specifically. An unemployment rate of 10 percent for people under 25 remains elevated in the US, while in the UK the figure stands at 12 percent.
Meanwhile, in the US company bankruptcies were down by 5 percent year on year in 2020, a reversal of the trend of increasing rates from 2017 to 2019, as government stimulus programmes helped many viable companies stay afloat. However stimulus measures have also propped up non-viable firms, or “zombie companies", Swiss Re warned, creating a potential burden for the financial sector in the form of increased credit default rates. Low interest rates are incentivising companies to take up bank credit, creating a risk of large-scale defaults on these loans once government support dries up and zombie companies become insolvent.
A recent Swiss Re Institute paper concluded that for sustainable economic recovery, policy should support businesses that are viable in the long run and facilitate the orderly restructuring of non-viable firms.
Swiss Re also highlighted transportation as an important target area for decarbonisation. The sector currently contributes about 24 percent of global CO2 emissions from fuel combustion, but the transition to electromobility, hydrogen fuel cells and non-fossil-based fuel alternatives can help reduce this impact, it said.
While the benefits are clear, Swiss Re noted there are also risks: city planners must find ways for new e-vehicles to safely coexist with traditional transport and infrastructure, while injuries from e-scooters and e-bikes could increase liability claims. The rental model for new forms of urban transport also requires increased sharing of personal information, increasing the risk of data theft, it warned. Legislation and regulation will therefore also need to be updated in order to mitigate these risks.
Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.
