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Insurance to the rescue of the global economy

by

Frédérique De Simone

10 September 2019 13:30

Photo : Freepik

The insurance could help the global economy, less resilient than at the beginning of the last economic crisis, by filling a gap of 1 200 billion u.s. dollars in protection, according to the institute of research sigma of the reinsurer Swiss Re. It is a record, says the report.

The study, conducted jointly by the Swiss Re Institute and the London School of Economics, shows that 80 % of the observed countries had scores of resilience that are lower in 2018 than in 2007. The exhaustion of the options of monetary policy in many developed countries and a difficult operating environment for the banking sector are in question. The sample includes 31 countries, which account for three-quarters of global GDP.

“Given the 35% probability of recession in the United States next year and its global ramifications, it is more important than ever to assess the resilience underlying our economies and look beyond the traditional measures of GDP. Overall, the margins of manoeuvre vis-à-vis economic shocks are now more thin than in 2007. The ultra-accommodative monetary policy of recent years leaves little leeway for central banks, while strengthening their dependence on financial markets. This may lead to recessions longer in the future, ” said Jerome Jean Haegeli, group chief economist, Swiss Re.

The resilience insurance

In Canada and the United States, nearly two-thirds of the protection needs are currently covered by the existing resources, including insurance. These are the regions that were most resistant in 2007 and who are still in 2018, despite a decline during the period.

The protection against natural catastrophes has helped to increase resilience. This is the third highest level behind the Oceania and the advanced economies in Europe. The life insurance has decreased because of the situation in the United States, where the need of replacement of salaries and debt have risen more quickly than financial assets accumulated and where the life insurance cover is almost stagnant since the beginning of the century.

According to the analysis, Canada, like Switzerland, has always featured among the three countries with the most resilient over the last decade, and the United States are regularly improved compared to their low point of 2010.

The Oceania grand champion

The greatest improvement in the resilience of insurance has been recorded in Oceania, where the index reached 77 %, which is by far the geographical area the more resilient. Oceania also displays the score of resilience, the higher the risks of natural disasters in all regions of the world. This reflects the blankets seismic compulsory in New Zealand and the success of efforts that aim to increase the uptake of flood insurance in Australia.

The advanced countries of the Asia pacific and continental are the most resilient to the risk of mortality from all regions of the world, with 62 %. Taiwan, Hong Kong, South Korea and Japan are among the world’s economies, where the penetration rate of life insurance is the highest, thanks to the products of type savings.

As for the emerging countries, the insurance coverage against the three main risks remains significantly lower than the emerging countries. They have the largest deficit in absolute protection insurance, nearly 80 % of the regional total.

Two-thirds of the needs covered in Europe

In Europe, nearly two-thirds of all the estimated needs in terms of protection against the three main risks are currently covered by the existing resources, including insurance. It is slightly more than for all the advanced economies of the world.

The advanced countries of Europe owe a debt of gratitude to the protection against the risks of natural disasters. The increase in the subscription for insurance against floods in Germany and the introduction of the scheme Flood Re in the Uk to help reduce the loss of states and represents the largest step forward for Europe.

While the emerging european economies have seen their index of resilience of the insurance increase since the beginning of the century, the greatest improvement regarding the life insurance, which is now at a level close to the global average.

Progress in Latin America

The index of resilience of the insurance has increased over the last ten years, but remains far below the global average of 54 %. The estimated needs in terms of protection against the three main risks are not currently covered by the resources available, not even through insurance.

The insurance coverage has improved since 2000 to reach 89 %, the highest level of all regions, with an emerging economy. In contrast, the coverages life insurance and for natural catastrophes remained at a very low level.

Latin America is the only region to have recorded an improvement of the economic resilience, although at a low level because of structural problems. The capital markets of the region are not sufficiently developed, the labour markets have a low productivity and a significant part of the population remains vulnerable to the risk of falling back into poverty.

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