The insurance industry has a critical role to play in strengthening resilience as countries recover from the impact of the COVID-19 pandemic, Swiss Re Chief Economist Jerome Haegeli says.

“Our industry is at the centre of building and improving resilience. I think the pandemic is a wake up call in terms of risk awareness,” he told an Australian briefing.

The insurers’ role stems from their core underwriting activity as well as the financial investments they make and hold through market cycles, Dr Haegeli says.

“We have the ability as well as the luxury and responsibility to invest for the longer-term,” he said. “Unlike banks who have a short-term funding requirement, our funding comes from premiums earned.”

Swiss Re expects the COVID-triggered global recession will be almost twice as sharp and deep as the global financial crisis experience. A rebound will be followed by a protracted recovery and adjustments to long-term repercussions.

“We should not underestimate the longer-term economic and political implications. Big paradigm shifts are in the making,” Dr Haegeli said.

Digitalisation trends will accelerate, bringing insurance product and claims handling benefits, while globalisation has likely seen its peak, with implications for supply chain risk management, according to Swiss Re.

More public and private partnerships with risk-sharing limits will be required for business interruption, potentially along the lines of terrorism schemes, and Swiss Re is “actively engaged” in discussing possible arrangements in several countries, Dr Haegeli says.

“The private sector cannot bear it alone,” he said. “You need to have a pre-arranged solution with the Government.”

Swiss Re expects Australia’s real gross domestic product to contract 4% this year, followed by growth of 3% next year, while the US is forecast to contract 6.4% followed by a rebound to 4.2%.

Dr Haegeli says the effect on insurance demand and premium growth will likely be more muted compared to the experience during the global economic shock a decade ago.

“Relative to the global financial crisis we are going to see a less deep contraction for insurance market premiums,” he said.

Swiss Re Australia and New Zealand MD Mark Senkevics says pandemic exclusions in business interruption policies resulted from the SARS outbreak and the conclusion that a pandemic could bankrupt the entire industry.

“Pandemic models are being completely rewritten as we speak. The last major data point that we had around pandemic was the 1918 flu,” he told the briefing. “SARS and MERS were also pandemics but more limited in their impact.”