Insurance resilience tested by Covid-19 as global protection gap climbs to $1.24trn

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New research from Swiss Re has shown the importance of insurance in economic recovery post-coronavirus

Covid-19 is expected to hit global financial resilience hard, with research from Swiss Re forecasting a 20% drop in global resilience as a result of the pandemic as stimulus packages deplete economies’ fiscal and monetary headroom.

Insurance resilience has also been hit hard by the pandemic, with the global insurance protection gap for health, mortality and natural catastrophe risks rising to a new high of $1.24trn in 2019.

Irina Fan, author of the Swiss Re research, said the situation globally has been deteriorating in recent years, with the Covid-19 crisis only exacerbating the problem.

“Annually the average growth in the insurance protection gap has been around 4% [since 2008],” she said. “That is much higher than the world’s GDP growth, which nominally has grown by around 2.8%.

“Covid-19 will affect a lot of companies and households in terms of their financial income, and if you have lower income and higher healthcare costs and higher levels of mortality, Covid-19 is only going to widen this global protection gap.”

Nat Cats most exposed

While health and mortality risks make up the majority of this insurance gap, accountable for $588bn and $427bn respectively, it is natural catastrophe risks that are most exposed on a proportional basis, with just 24.1% of nat cats protected by insurance, resulting in a $227bn protection gap.

In Europe, this figure stands at 42.8% for advanced economies, up from 34.7% in 2008, and just 8.8% for emerging economies (2008: 9.2%).

And looking to the future, Fan said closing this protection gap will be vital in boosting resilience and helping the global economy recover from the Covid-19 crisis.

“The purpose of insurance is to make the world more resilient, so if insurers can increase the insurance take up rate, it will help global resilience,” she said. “In last year’s report, we built a model that showed that if you can increase the resilience of individual households through insurance protection, then that actually provides increased resilience for the overall economy.

“So if we can have a higher insurance take up and improve household protection post-Covid-19, that can also reduce the burden on governments [looking to drive recovery post-coronavirus].”

To do this, insurers need to take advantage of the digital developments that have been accelerated by the conditions forced on them by the pandemic.

“Covid-19 has accelerated some of the digital behaviours of both insurers and households,” Fan says. “We have already seen growth through digital channels for insurers, and consumers have been actively reaching out to insurers to see what insurance they can buy, and one third of consumers have been buying more insurance.

“So Covid-19 has really helped build awareness around insurance, and people are more aware of the risks they are facing.”