Beyond the pandemic – longer-term emerging risks for insurance

Pandemic risk was on the insurance industry's radar well before the COVID-19 virus caused a global health crisis. But the effects of the pandemic have been wide reaching, and in some cases, underestimated and uncertain. As the virus and its consequences continue to evolve, Karen Tan, Chief Risk Officer, Reinsurance Asia, Swiss Re walks us through some emerging risks identified in this year's SONAR report.

Before 2020 and the COVID-19 crisis, typical industry pandemic models focused on potential mortality shocks. Yet, the extent of the economic, health and societal impacts of the COVID-19 pandemic resulting from sudden border closures, lockdown measures and broken supply chains were unforeseen. Since the outbreak, we have learned a lot about how a global health crisis can affect the health and wellbeing of individuals, have a greater impact on global economies as well as social systems. So, how do we navigate all of these unknowns?

The COVID-19 crisis dominates the risk landscape in 2021. The Swiss Re Institute's latest SONAR report highlights three emerging themes from COVID-19 developments: the market distortion from unprecedented levels of financial support, which is keeping some potentially unviable companies alive; the growing income inequalities across various populations disproportionately affected by the pandemic; and the long-term scars that COVID-19 may leave on people's livelihoods and their health.

Let me further elaborate on the third theme, drawing on the findings of Swiss Re’s Asia-Pacific COVID-19 consumer survey, marking the one-year anniversary of the pandemic.

At the onset of the pandemic, the efficient deployment and use of medical products – from masks, disinfectants and test kits – has varied across the APAC region. That said, the rapid development of vaccines has been impressive thus far – but how successful we are in rolling these out will come down to access to vaccines, virus mutations and efficacy to those variants, and concerns about possible side-effects. There are also unknowns around the potential severity of long-term health effects due to COVID-19 infections.

During the pandemic, non-COVID-related surgeries, treatments and screenings for cancer and other diseases were reported to be postponed by individuals or health providers. As a result, many patients were unable to receive the care they needed, and preventable illnesses have gone unchecked. Missed doctor visits have created a shadow health crisis. Mental health disorders such as anxiety and depression have also been on the increase, in addition to the rise of unhealthy lifestyles, due to less physical activity and increased alcohol and/or drug consumption.

The immediate management of the COVID-19 crisis will have longer-term effects on public health, global economies and societal resilience. Respective insurance covers may be triggered and/or protection gaps may be detected.

Long-term effects such as reduced life expectancy, particularly for at-risk population groups, is a very real possibility. This would further exacerbate financial and health-status inequalities.

Our APAC consumer survey found that one in four participants across the region continues to feel overwhelmed and anxious about their financial future and a staggering number of participants across emerging APAC markets are concerned about their health because of COVID-19.

The pandemic has exposed shortfalls in consumers’ insurance protection and triggered reprioritisation of policy importance. Health insurance is on top of mind for consumers, with medical reimbursement and critical illness nominated as the top two areas where consumers would like to seek more protection.

Given the long-term health effects brought on by Covid-19, what changes can we expect as a result of the evolving risk landscape?

One of the more positive outcomes of the pandemic is that consumers are taking a more proactive management of their personal health. While we observe an increase of new habits to manage physical health, mental wellbeing now ranks as the top health priority in APAC, followed by getting enough sleep, exposure to harmful elements, regular exercise and sufficient nutrition, according to our consumer survey. Many of these factors fall under the Big Six Lifestyle Risk factors that we are analysing and tracking at Swiss Re.

These factors capture behavioural traits that can supplement traditional risk measures and help insurers improve product offerings, consumer experience, overall health practices, the takeaway of risk assessments and the selection process.

Insurers play an important role here and lifestyle factors present many opportunities for our industry – improving the customer journeys, health and the possibility to underwrite risk in an entirely new way.

As the pandemic plays out, insurers are also presented with a rare window of opportunity to accelerate the digital transformation fuelled by pressing customer expectations in the new normal.

With heightened risk awareness around personal health and financial security brought on by the pandemic, the insurance industry is in a unique position to help households strengthen their resilience.

It is imperative that lessons from the present crisis are learned, as this will encourage community preparedness for future management of health crises.

While the pandemic is ever present, climate change remains an ongoing threat, particularly for the APAC region. Our latest SONAR report also discusses the opportunities and risks to achieving net-zero emissions by 2050.

Many organisations and industries are developing their own decarbonisation pathways to reach the goal of net-zero emissions by 2050, which means emissions need to be cut by 50% before 2030.

Insurers bring risk knowledge, transitive solutions and investments, key enablers to the deployment of green infrastructure and low-carbon technologies

Swiss Re Institute has recently published a report to elaborate on the insurers' role in supporting the development of carbon removal technologies which will plays an instrumental part in net zero carbon transition.

On the asset side, aligning investments with net-zero targets can also help to improve portfolio performance and avoid stranded assets.

The new momentum in the transition to a low-carbon economy could also come with new risks for insurance portfolios and for insurers themselves.

Moreover, as climate change remains an ongoing risk and in light of the recent spate of extreme weather events globally, this year's SONAR report sheds light on this topic from the angle of climate change insurance risk intensifying as insurers continue to address these risks and build societal resilience.

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​SONAR 2021: New emerging risk insights

While the COVID-19 crisis dominates the risk landscape, other emerging risks and trends arise from developments in human-machine interaction, connected infrastructures, and ethics and sustainability.