According to Sigma Re Institute, the COVID-19 crisis reduced overall global macro resilience by 18% in 2020 from 2019. Of the major economies, UK, US and Japan experienced the greatest falls in resilience. At the same time, the global insurance protection gap reached a record high of $1.4 trillion.
Whilst global economic growth is expected to recover strongly in 2021, after the pandemic induced recession of 2020, Swiss Re warns that “there will not be a return to pre-Covid-19 levels of resilience in 2021″
“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” commented Jérôme Haegeli, Swiss Re Group Chief Economist, in a statement.
“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,” Haegeli added.
Globally, mortality resilience declined the most, mainly due to a widening of the mortality protection gap in the Asia-Pacific region, where China’s protection gap broadened due to “rapidly growing” household debt. Health resilience was stable despite some deterioration in emerging markets. The global health protection gap grew by over 5% to $588 billion.
Natural catastrophe resilience was lowest of the three risk areas, Swiss Re said with the global index reading at 24% in 2020, meaning that 76% of these protection needs around the world are uninsured. “In essence, 4 billion people around the world are highly under-protected against natural catastrophes risk,” the report continued.
Closing the insurance protection 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,” said Haegeli.
Switzerland, Finland and Canada are the world’s three most resilient countries, reflecting their “comprehensive economic strength” against future crises. China’s resilience will likely remain relatively unchanged, since it reopened its economy earlier than many others.
Whilst stimulus packages have cushioned the blow to the global economy, they have depleted many countries’ fiscal and monetary reserves, causing their resilience scores to fall. Monetary policy buffers will be largely exhausted in most advanced economies, leaving fiscal headroom as the major determinant of resilience, Swiss Re noted.
What is Insurance Protection Gap
The insurance protection gap is the difference between economic losses from an event and those losses covered by insurance. A larger protection gap indicates lower insurance resilience. The causes and prevalence of insurance protection gaps vary widely across the globe, reflecting different stages of economic development as well as social, institutional and cultural peculiarities. Insurance protection gaps are most striking in developing and emerging markets where combined insurance premiums still fall significantly short of these countries’ and regions’ share in global GDP.
What is Global Macro Resilience
Essentially, macroeconomic resilience refers to the ability of countries to withstand shocks and recover quickly towards potential growth. The Macroeconomic Resilience Index, developed in conjunction with the London School of Economics, paints a global picture and comprises of ten indictors, including fiscal and monetary policy space, insurance penetration and the recently, income protection. A second set of indices assess how insurance helps individuals, households and organization to withstand shock scenarios in the areas of natural catastrophes, mortality and healthcare spending.