Insurance Gap Grows as COVID-19 Hurts Global Economic Resilience

The COVID-19 pandemic is expected to weaken world economic resilience by nearly 20 percent in 2020 while the combined insurance gap for mortality, health, and natural disaster risks is expected to reach a new high of $1.24 trillion, according to the Swiss Re Institute.

The United Kingdom, Japan, and the United States will experience the greatest falls in resilience among major economies, according to the Swiss Re Institute's annual Macroeconomic Resilience Index. Switzerland, Finland, and Canada remain the world's three most resilient countries, Swiss Re found, reflecting their comprehensive economic strength against future crises.

The world entered the COVID-19 crisis with less shock-absorbing capacity than before the global financial crisis of 2008-09, the last major economic downturn, Swiss Re said. Government responses to COVID-19 are expected to significantly lower global economic resilience this year.

While government stimulus packages have cushioned the COVID-19 pandemic's blow to the global economy, they have run down many countries' fiscal and monetary reserves, according to Swiss Re, causing countries' economic resilience scores to fall.

"The fiscal and monetary stimulus response to COVID-19 was key to cushioning the economic impact of government-ordered lockdowns," Jerome Jean Haegeli, group chief economist at Swiss Re, said in a statement. "However, the reality of wartime-like spending is that it leaves much less room for future policy maneuvers."

Insurance resilience against three major risks—mortality, health spending, and natural catastrophes—weakened in 2019, according to Swiss Re's indices.

Globally, mortality resilience declined the most, driven by a widening of the mortality protection gap in the Asia-Pacific region, where China's protection gap expanded due to rapidly growing household debt, Swiss Re said. Health resilience was stable despite some deterioration in emerging markets. Natural catastrophe resilience was the lowest of the three risk areas.

"The widening global protection gap is a huge opportunity for insurers to fulfill their mandate as risk absorbers and improve societal resilience," Mr. Haegeli said. "In times of crisis, households need risk protection. Insurance is a key tool to help households reduce their financial vulnerability in disruptive environments."