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The post-pandemic world: 'scales tipped' in industry’s favour

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The coronavirus is proving to be a formidable foe to crush. More than a year into the public health crisis, the world is still struggling to hold the virus at bay as more infectious variants emerge, seeding new waves of transmissions.

A return to normalcy without mask wearing and QR code check-ins may be some time away yet but for the insurance industry, Swiss Re says there is much to look forward to when the COVID-19 nightmare is over.

Not only is the industry poised to sprint back faster than it did from the 2008-09 global financial crisis, the reinsurance giant says the pandemic has cemented “positive paradigm shifts” for insurance in the form of growing consumer awareness of risk protection and digital adoption.

“The scales are tipped towards a positive insurance outlook,” the reinsurer’s Swiss Re Institute says in its latest Sigma study. “The [economic] recovery may be uneven worldwide, as much still depends on the ability of vaccines to keep the pandemic under control.

“However, on balance we have a positive outlook.”

Released last week, the Sigma study offers a peek at what’s in store for the insurance industry in a post-pandemic world.

The study says the pandemic has been a major catalyst for heightened awareness of the importance of risk mitigation. And it is not just confined to life and health insurance lines.

“Whether it is private medical insurance or supply chain interruption for businesses, the pandemic experience has made people much more aware of the need for insurance protection,” Swiss Re Institute Head Insurance Market Analysis Irina Fan said.

As the study puts it, “the pandemic has also impacted risk awareness in non-life insurance”.

The pandemic chaos has made the corporate sector much more conscious of its risk environment and what it means for their businesses, including from potential disruptions to global supply chains given the hiatus in international trade, and cyber risks, as employees work increasingly from home.

“Companies are seeking more comprehensive and flexible protection such as parametric covers as they adapt to new ways of working post-COVID-19,” the study said.

The study says another positive to have emerged from the pandemic is the swift adoption of digital technology by the insurance industry.

Initially seen as an aid to convenience or commoditisation in property and casualty (P&C) personal lines, the digital tool kit has since moved to cement its role as a sales and service facilitator during the pandemic lockdowns.

There’s no holding back the digital wave, the study says, as consumers have quickly adapted to online channels and increasingly prefer to transact digitally from start to finish.

“This creates opportunities for insurers along the whole value chain, from acquiring new consumers and providing consulting advice to underwriting, generating insurance policies, processing payments and after-sale services,” the study said.

“It is imperative that insurers offer digital engagement at all touchpoints as they compete with new, non-traditional players entering insurance markets.”

The wide-ranging study also touched on the state of the global economy and what its recovery will mean for insurers.

The economic outlook, according to the study, bodes well for the industry with the world set to recover strongly from the COVID-induced slump.

Swift deployment of vaccine rollout in the US and several advanced economies, combined with the economic boost from massive fiscal stimulus to support households and businesses, have the world on track to rebound strongly from the pandemic downturn.

The study predicts the global economy will achieve a 5.8% expansion in real gross domestic product this year, after a 3.7% contraction last year.

And this augurs well for the insurance industry, with the improved economy to translate into increased demand for risk protection products.

The study says the insurance industry should see above-trend growth of 3.3% this year and 3.9% in 2022.

If achieved, it means combined non-life and life premiums written globally will exceed $US7 trillion ($9.4 trillion) for the first time by the end of next year.

“The rapid global economic recovery, the strongest rate hardening for 20 years in non-life insurance commercial lines and increasing risk awareness will fuel rising demand for risk protection insurance,” the study said.

After registering a 1.5% rise to $US3.49 trillion ($4.7 trillion) last year, P&C premium volume globally is forecast to improve further to 2.8% this year and 3.7% in 2022.

The study says the non-life sector demonstrated resilience under difficult circumstances in the COVID-19-induced global economic recession, the deepest since World War II.

Advanced market premiums, including Australia, grew faster than emerging markets for the first time in 25 years, partly driven by strong commercial line rate hardening.

The study says commercial P&C lines will lead non-life growth with a 6% rise in premium volume this year and 5% next year.

Click here to download the report.