building societal resilience
buildingsocietalresilience

Rebuilding resilience in the COVID-19 era

Just like the millions of people who have been infected by COVID-19, fighting off the virus has left the world weakened and with fewer reserves to tackle another infection. The health of nations, it seems, mirrors that of their people.

And just like the patients who have suffered most, the resilience of the global economy was already weakened when the pandemic struck. In the case of economies, it was the fallout from the 2008 global financial crisis that reduced their ability to bounce back.

According to Swiss Re Institute's new Resilience Index 2020, global resilience has declined by a fifth since 2019, mainly due to the cost of stimulus measures which have removed many nations’ capacity to fight future crises.

It’s only been a year since Swiss Re Institute first published its Resilience Index, which uses multiple indicators to assess economic capacity and public policy as well as vulnerability to natural catastrophes and the strength of a nation’s health and social infrastructure. Yet in that time, global resilience has fallen by 30% compared to pre-2008 levels.

The recovery process 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.

Resilience is more important than ever in the post-COVID world. It is vital that all stakeholders – insurers, reinsurers and governments – work together to rebuild the global economy. Insurance will have a central role in this process, protecting the vulnerable and making the world more resilient.

Thierry Léger, Group Chief Underwriting Officer, SwissRe

Replenishing economic resilience

One of the most striking things about the pandemic is how governments responded to prop up economies.

Mitigating the impact of the pandemic has exhausted many nations’ fiscal buffers, limiting governments’ room for manoeuvre. The long-term economic effects of lockdowns also make it harder to predict when global GDP will recover.

Greater liquidity in capital markets will be essential for re-building resilience, the report says, and capital is going to be at a premium in the post-COVID world.

The global economy no longer has the luxury of relying on monetary and fiscal levers alone, the Resilience Index notes, and priority should be given to improving long-term growth prospects.

The pivot to sustainability

Structural reforms, such as building sustainable infrastructure, will be needed to drive such growth and deliver resilience. Of equal importance will be strengthening the digital economy and accelerating 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.

“Building resilience is about making the right choices,” says Léger. “All the evidence points to the strong connection between resilience and sustainability.

Governments and individuals need to make the right choices to make our world more sustainable, whether it’s how we live, how we work, how we consume or how we do business. But time is not on our side – this is now an urgent priority.
Thierry Léger, Group Chief Underwriting Officer, SwissRe

Insurers can also promote the creation of sustainable infrastructure by choosing how and where to invest funds – something Swiss Re actively engages in.

Mind the insurance gap

The Index also notes that 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 rose to a record high of USD 1.2 trillion, with the biggest gaps in health and mortality protection as well as natural catastrophe cover. The insurance gap remains smallest in North America and largest in Asia Pacific.

The impact of the pandemic on individuals and households will vary depending on the quality of health infrastructure and the success of government containment policies. More than 60% 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.

The global mortality protection gap stands at USD 427 billion and the mortality resilience index is just 43.6%, 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.

Unsurprisingly, consumer surveys show rising risk awareness and higher interest of buying insurance since the outbreak of the coronavirus pandemic. But affordability remains an issue.

Technology and data are key

To this end, Swiss Re is stepping up efforts to reach more people in those markets. According to Léger, the technology coupled with data is the key to closing the insurance gap and making the world more resilient.

“Technology and data help us underwrite new risks and are critical in improving attractiveness, affordability and efficiency of our products.” he explains. “Faced with the consequences of COVID-19, this is something we must accelerate."

"Digitisation also makes it easier for people to obtain cover. Social media and mobile phones allow us to reach more people, including the most unprivileged ones. This is an important step in closing every increasing insurance protection gap.”

The vision is to make taking out insurance cover as easy for individuals as booking a hotel room online.

A faster response to natural catastrophes

Tech solutions are emerging across the risk landscape, not just in health. The other biggest component of the insurance gap is natural catastrophe cover, and as the climate crisis intensifies, catastrophic events are likely to become even more frequent.

The Index score for global natural catastrophe resilience is the lowest of the three index risk areas at 24%. In emerging Asia, it is just 3.5%, meaning 96% of natural catastrophe losses are unprotected. While scores improved in Europe and advanced Asia, they declined everywhere else.

Although the frequency of flooding is rising, flood risk is one of the most under-insured areas. Technology can help here by providing data for parametric cover – where pay-outs are triggered by independently verified measurements, like extreme rainfall, rather than waiting for claims to be submitted. This means help will reach those affected faster.

In combination with risk pooling with national and local governments, this type of insurance can improve resilience to natural catastrophes of all types.

It is by working together to form such partnerships and foster innovation, that resilience can be rebuilt, leading to a better tomorrow for everyone.

These issues will be among the topics for discussion at Swiss Re’s virtual Monte Carlo event in September: Transforming Tomorrow Together.  To join the debate, please visit our events page here and sign up to attend sessions.

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buildingsocietalresilience infrastructure insurancesolutions sigma corona covid19

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