Back to (the old) normal? Beware the risks

With increasing vaccination rates, and fewer hospital admissions, we've entered a new phase in the pandemic.

As more governments gradually lift COVID restrictions, the prospect of returning to a “normal life” looks promising. Hopes for the perfect summer holiday are rising and travel fever is gripping people in the Northern Hemisphere as many embrace their newly gained freedoms.

For the insurance industry, the reopening of our economies and resumption of suspended activities in the coming months could lead to more demand for coverage, but also to more claims. While the full impacts of the new virus variants are still unknown, the risks that this transition phase poses to carbon-reduction plans, health, business and society should not be overlooked.

Pent up travel demand

Greenhouse gas emissions dropped by 6% in 2020 compared to 2019 due primarily to the pandemic, according to the International Energy Agency (IEA). Easing border restrictions brings back the freedom to travel, and with it the risk of a spike in carbon emissions. By the end of May 2021 the International Air Transport Association (IATA) already counted more than 20 countries that had wholly or partially lifted restrictions for vaccinated travellers.

As leisure travel takes off even further, airlines are adding destinations and increasing flights. In June, the US Transportation Security Administration (TSA) screened more than 2 million passengers in a single day for the first time since March 2020.

Carbon-heavy commuting choices

We can observe a similar trend on our roads. Cars, trucks, buses and two- and three-wheelers account for nearly three-quarters of transport CO2 emissions, and around a quarter of global CO2 emissions. They played a big part in bringing down carbon emissions last year when lockdown measures kept motor vehicles off our roads.

As more and more companies want people back in the office, the choices commuters make about their transport modes will have a big impact on car emissions. Since the outbreak of the pandemic there was a shift from public transportation to cars, triggered by fear of infection. If this trend continues in the transition period, carbon emissions from transportation may again reach pre-pandemic levels and contribute to global warming.

Climate change increases the frequency and severity of natural catastrophes such as floods, storms, excessive rainfall and drought. And it threatens the global economy at large. According to Swiss Re Institute research, global temperatures could rise by more than 3°C by mid-century if no mitigation action is taken, and the world economy could shrink by 18% in the next 30 years under the most severe climate scenario.

Mental health impacts

The lack of social contact and interaction during the pandemic has had a severe impact on many people's mental health. After a year of isolation, the return to a normal life and the freedom to engage once again in social activities don't come as a relief for everyone. Even people who had never experienced any social anxiety before COVID-19 are now feeling uneasy about post-pandemic life and experiencing so called "cave syndrome" – a phenomenon that describes basic anxiety to start interacting normally.

This reluctance to step out of the "Covid cave" was highlighted in Swiss Re's APAC COVID-19 consumer survey. The survey showed that many people have a strong desire to return to some semblance of normal social life. But one third of respondents are still keen to maintain social distancing and avoid large gatherings, such as concerts and festivals, due to the uncertainty around COVID-19.

However, avoiding normal social interaction can be detrimental to mental health. Research shows that social isolation is associated with declines in cognitive function – and with it our ability to connect easily with other people.

In recent years re/insurers paid much more attention to mental health. With increasing evidence of the impact mental health problems can have on cardiovascular and other diseases, insurers not only screen policyholders for physical diseases but also for mental health conditions.

For health insurers in many countries, mental illnesses led to the highest increase in costs of all medical conditions in the last few years. The stresses of transitioning to the next phase of the pandemic could trigger even higher demand for treatment.

Getting off the couch

As gyms and fitness centres reopen, people will once again have the option to work out and exercise indoors. But will they return to their old exercise habits and activity routines?
Since the pandemic, social distancing and staying at home have become part of normal life. This has exacerbated the problems associated with physical inactivity and sedentary lifestyless. In the US, 61 percent of adults gained weight during the pandemic.

Even before COVID-19, 31% of individuals 15 years or older were physically inactive, leading to more than USD 50 billion healthcare costs per year globally. Around 3.2 million deaths per year are attributable to this unhealthy lifestyle.

Because of the clear link between physical activity and health and mortality insurers have started to include physical activity in their risk assessment in recent years. Accordingly, people who fall back to their pre-pandemic exercise routines during the transition period can reduce their health risks.

Restarting operations

It’s not just people who may have trouble getting back in shape. Factories, machinery and vehicles, such as planes, require regular safety checks and maintenance. In many cases, the pandemic led to a suspension of their operations, increasing the risk of failures and accidents.

Studies show that nearly half of all accidents or major losses in the refining, petrochemical and chemical industries occur during start-up, shutdown and other infrequent events. The same applies to mothballed planes. In addition to the lack of physical maintenance of an aircraft, pilots are resuming work after long periods of no or reduced flight time. Human error accounts for up to 80% of aviation accidents.

For the insurance industry, increasing claims from restarting operation failures is a major risk.

Rise of the Zombie companies

Another risk that looms large are companies that are currently being propped up by COVID-19 relief programmes. Many governments supported companies during the pandemic to prevent bankruptcies.

The US saw a 5% decline in corporate bankruptcies in 2020, a reversal from an upward trend from 2017 to 2019.

Government stimulus programmes have not only helped viable firms stay afloat but have also supported non-viable businesses that would otherwise have gone bust, so-called “zombie” companies. This “ticking time bomb” could lead to an explosion of bankruptcies once governments end their stimulus measures. A wave of bankruptcies would confront insurance companies with a series of third-party claims seeking recovery from insolvent companies.

Considering all the risks that could occur as we enter the post-COVID-19 world, the importance of the transition phase cannot be underestimated. The new "normality" we hope for should not be jeopardised before we reach it.

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