COVID-19 weakens global economic resilience, protection gap hits new high, claims Swiss Re Institute

The impact of COVID-19 pandemic is expected to reduce global macroeconomic resilience by about 20 percent in 2020, with the global insurance protection gap reaching a new high of $1.24 trillion, claims a new study by Swiss Re Institute.

Swiss Re report stated that government responses to COVID-19 are expected to significantly lower global economic resilience in 2020, with the fiscal and monetary buffers largely exhausted in most advanced economies around the world.

Among the major global economies, resilience in the UK, Japan and the US are expected to be hardest hit with their fiscal buffers depleted most and their index scores decline furthest, while Switzerland, Finland and Canada are anticipated to remain the world's three most resilient economies, according to the report. China's resilience will likely remain relatively unchanged, primarily because a swift response enabled it to reopen its economy earlier than many others.

The combined insurance protection gap for mortality, health and natural disaster risks is calculated as reaching a new high of $1.24 trillion. Swiss Re Institute expects that health and mortality protection gaps to widen as households grapple with lower incomes, higher healthcare costs and the financial consequences as a result of the pandemic.

Swiss Re noted that 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.

Jerome Jean Haegeli, group chief economist at Swiss Re, said: "The fiscal and monetary stimulus response to COVID-19 was key to cushioning the economic impact of government-ordered lockdowns. However, the reality of wartime-like spending is that it leaves much less room for future policy manoeuvre. What's more, the key economic policy risk is that these temporary government measures are too challenging to unwind and become permanent, leaving economies dependent on ongoing stimulus. A focus on replenishing resilience by reinstating fiscal and monetary buffers, through structural reforms to improve long-term growth prospects, will be critical."

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