Home / International / Protection gap rises to $US1.2 trillion: Swiss Re
9 September 2019
The global economy has less capacity to absorb a shock than it did at the start of the financial crisis more than a decade ago, while the insurance protection gap has also widened to a record $US1.2 trillion ($1.8 trillion), Swiss Re says.
The protection gap measures the difference between available and needed cover across the core perils of natural catastrophes, death of a household’s main earner and health risks.
Swiss Re Chief Economist Jerome Jean Haegeli says insurance resilience has kept pace in relative terms but gaps “remain huge” in absolute terms and present an opportunity for the industry.
“With ever more complex risks and global uncertainties, I see the importance of insurance companies in supporting global resilience as increasingly important,” he told insuranceNEWS.com.au.
The impact of insurance in providing rebuilding funds is particularly important in emerging markets and leads to less government spending and private borrowing after disasters in developed economies.
“Our research also shows that higher non-life insurance penetration is associated with lower economic variability,” Mr Haegeli said.
Insurance companies manage about $US30 trillion ($43.8 trillion) in assets and their longer-term investment timelines also contribute to improved financial resilience, he says.
The Swiss Re Institute Sigma report, Indexing resilience: a primer for insurance markets and economies, shows Switzerland, Canada and the US have the highest macroeconomic resilience, with Australia in the middle rankings.
The Macroeconomic Resilience Index has been developed by Swiss Re and the London School of Economics, while separate SRI Insurance Resilience Indices look at the impacts of coverage levels at the household and organisational levels.
By region, Oceania has the highest natural catastrophe index score “due to compulsory earthquake covers in New Zealand and success in efforts to increase uptake of flood insurance in Australia”.
A decline in the score for emerging economies overall since 2000 reflects strong economic growth that has outpaced the development of the private insurance sector in many markets.