A volatile risk environment exposes the fragility of 2021's insurance resilience gains

Economies benefited from a COVID-19 rebound last year, helping global insurance resilience regain at least some of the ground it lost during the pandemic, our latest Swiss Re Insurance Resilience Index shows. But with slowing growth, soaring inflation and geopolitical tensions, the improvement is likely to be fleeting. Re/insurers can work against this trend by fulfilling their shock-absorbing role.

The Swiss Re Institute Global Composite Insurance Resilience Index rose slightly to 54.3% in 2021, after taking a tumble during the pandemic. On the surface, that's good news. A rising indicator is a sign that society's capacity to respond to and recover quickly from a crisis has improved. And while 2021 macroeconomic resilience hasn't returned to pre-global financial crisis levels of 15 years ago, it, too, has made a comeback from the depths of COVID-19, mainly due to strong fiscal space gains.

Unfortunately, the insurance resilience improvement is showing distinct signs of being very short lived. The turbulent events of recent weeks and months, including the war in Ukraine that is now contributing to unprecedented global uncertainty, mean that the prospect of seeing additional gains in insurance resilience in 2022 is shaky, at best.

Last year's tenuous recovery was driven by several factors, including higher demand for insurance as the pandemic sensitized people to risks and prompted them to buy or add protection. As nations emerged from the depths of pandemic lockdowns, household incomes from Europe to Asia to North and South America also recovered.

But some of the reasons behind the rise in insurance resilience were only temporary. For instance, massive public health funding during the pandemic on everything from COVID testing to health facility preparedness played a central role in lifting insurance resilience, while out-of-pocket expenditures including on elective medical procedures declined.

For the current year, however, we see a different story emerging. There will be reduced government funding for healthcare as public budgets come under pressure and people resume elective treatments.

And with inflation in key economies suddenly at 40-year highs, protection needs are expected to rise. But with the geopolitical uncertainty and a slowdown in economic activity as central banks aggressively boost interest rates, assets available to cover rising costs likely won't grow sufficiently to keep pace.

This one-two punch -- a cost-of-living crisis coupled with stagnating or contracting economies -- will likely widen the overall insurance protection gap in 2022 to what we forecast will be nearly USD 1.5 trillion, well up from USD 1.42 trillion last year. The upshot is, we see health, mortality, and natural catastrophe insurance resilience all contracting in 2022, leaving people across the globe more exposed should another crisis suddenly emerge.

For governments, the takeaway is that they must make good policy choices that promote construction of sustainable infrastructure. They should take steps to improve their human capital, with investments in education and workforce training. And they must refocus efforts on reducing what in recent decades has been widening inequality in many societies.

Quite frankly, inclusive growth should be on every policymaker's (and every insurer's) list of must-wins. Addressing inequality is critical, since we know that the high inflation we are currently experiencing impacts the lowest-income households the most, undermining faith in institutions and potentially spurring civil unrest. We need global action, from the world's leading countries, to address issues including hunger in the world's poorest regions.

For their part, Insurance providers must join with policymakers to deliver risk transfer via public-private partnerships that can drive innovation in products and distribution. This will extend the reach and coverage of insurance protection, shielding governments from the worst shocks of natural catastrophes while reducing painful out-of-pocket expenditures by individuals that can drive the most vulnerable people into poverty.

Our investment policies can support sustainable infrastructure, including practices that help limit or even remove carbon emissions. At Swiss Re, we've embarked on the path to net-zero carbon emissions, and we're partnering with our customers to help them toward this goal, as well. Moreover, we are deploying technology to reap the advantages of digitalisation to create products that are more accessible and affordable, including for groups traditionally underrepresented among insurance buyers.

At their core, insurance products boost the ability of individuals, households, companies, and organisations to withstand shock scenarios, whatever their origin. By working to close the protection gap, especially in times of crisis like the one we are living through, re/insurers will help make families less vulnerable – and the world more resilient.