Coming out stronger: how to strengthen resilience after the pandemic
COVID-19 has left our world weaker and exposed. Rebuilding resilience will require a greater focus on sustainable growth and equal opportunity.
Article information and share options
Just like the millions of people who have been infected by COVID-19 or are still struggling, fighting off the virus has left the world weakened and with fewer reserves to tackle another infection.
And just like the patients who have suffered most, the resilience of the global economy was already weakened when the pandemic struck. The slow economic recovery from the 2008 global financial crisis meant that resilience never got back to where it had been prior to 2008.
According to Swiss Re Institute's Resilience Index, the COVID-19 pandemic further reduced global resilience by close to a fifth compared to 2019. This was mainly due to the cost of the extraordinary stimulus measures which removed many nations’ capacity to fight future crises.
Resilience and sustainability go hand in hand
Although we expect global macroeconomic resilience to recover in 2021, it will not be a full return to pre-pandemic levels. Importantly, our investigations show that resilience pays off: those economies with higher levels of resilience before the onset of the COVID-19 crisis have bounced back stronger from the pandemic induced lows.
Nevertheless, the reality is that the recovery, even in the more resilient economies, will be vulnerable to setbacks as government debt levels remain high and fiscal space will no longer expand to the same extent when growth slows again in 2022.
Deeper structural reforms must therefore remain a priority to drive long-term growth and replenish macroeconomic resilience. This will require investment and commitment to facilitate change across many different areas, including the building of sustainable infrastructure, a broader roll-out of the digital economy and the transition to low-carbon energy.
Governments also need to act to reduce inequality and build human capital through education and training. Labour markets must become more efficient so that more people have the chance to participate in the workforce and make up for personal losses from the crisis.
Mind the protection gap
Governments absorbed the bulk of the pandemic shock with emergency spending on public health needs. But as the Index shows, the global protection gap – the difference between levels of insurance cover and expected losses – is widening at a time when governments lack the resources to make good the difference. This leaves societies dangerously exposed to potentially devastating losses.
Last year, the global protection gap for health, mortality and natural catastrophes rose to USD 1.4 trillion amidst the pandemic. The biggest gap remains in natural catastrophe cover, with 76% of protection needs uninsured globally. The insurance gap for natural disasters is smallest in Western Europe.
The global mortality protection gap stands at USD 408 billion. In 2020, it increased mainly as a result of a drop in financial assets and growing household debt amidst the pandemic crisis. The gap translates into a mortality resilience index of 45.8%, meaning that well under half of the funds needed to maintain a household after the death of its primary breadwinner are protected by assets like life insurance or social security.
An unequal burden
The impact of the pandemic on individuals and households varies depending on the quality of health infrastructure and the success of government containment policies. More than two-thirds of the gap last year came from emerging markets, particularly emerging Asia.
Poorer countries face a double whammy: COVID-19 has exposed wide differences in the availability of intensive care beds, so they face the challenge of scaling up provision on very limited budgets. At the same time, they need to protect those who become sick from often crippling healthcare costs.
In low-income countries, out-of-pocket expenditure typically represents more than 40% of all household healthcare spending, compared with only 24% in advanced markets, and leaves households vulnerable to financial stress. Affordable health insurance can play a central role in enhancing protection and reducing this financial risk.
Insurance is key
By helping to close the protection gap, re/insurers will have a central role in putting vulnerable households on a more secure footing and making the world more resilient.
Technology and data are key assets in efforts to reach more people across the world, especially those that have so far been unable to access or afford insurance products. Digitisation not only makes it easier for people to obtain cover, but also saves costs for insurers in areas such as onboarding clients, underwriting and settling claims.
The re/insurance industry can also promote the creation of sustainable infrastructure, both by offering risk cover and choosing how to invest funds. For example, re/insurers are already supporting growth in the renewable energy industry and becoming increasingly active in supporting nascent technologies like carbon removal, which will accelerate the transition to a net zero economy.