Insurance demand will slump in 2020 — but industry will recover strongly, says Swiss Re

Analysts at Swiss Re Institute believe that the global insurance industry will recover strongly from the COVID-19-induced global economic recession, with emerging economies, led by China, underpinning the insurance market comeback.

According to a latest Swiss Re sigma report, this year's recession, the sharpest economic contraction since the Great Depression of the 1930s, will lead to a steep fall in demand for insurance in 2020, with global life premiums contracting by 6 percent and non-life by 0.1 percent — but it will be short-lived.

Swiss Re suggests that the total global insurance premium volumes will return to pre-COVID-19 crisis levels in 2021, alongside more protracted recovery in the global economy.

Moreover, there will be sector divergence, with non-life premium volumes above pre-crisis levels, and life below. Rate hardening in commercial lines will support profitability in non-life, while rising risk awareness due to COVID-19 will support premium growth across many lines of business over the longer term.

Premiums in trade and travel-related insurance business such as marine, aviation and credit will be hit the hardest. Property and medical business will be more stable.

The report highlighted that emerging markets, led by China, will underpin global market strength with total premiums up 1 percent this year and 7 percent in 2021.

The report further stated that the COVID-19 crisis will present challenges to industry profitability. In addition to pandemic-related losses, investment returns will remain subdued as interest rates stay low for longer, impacting life and long-tail lines in non-life.

Additionally, rising corporate defaults could lead to losses on invested assets. In life, claims payments due to COVID-19 will likely have limited impact, but falling sales and fee income due to restricted in-person interactions on account of the lockdown measures imposed to contain the spread of the coronavirus, will weigh on profits this year.

Swiss Re, however, noted that the insurance industry is "very well capitalised" to absorb these losses. It said, the COVID-19 shock will likely accelerate paradigm shifts such as a restructuring of global supply chains to mitigate future business disruption risks, giving rise to new premium pools in property, engineering and surety insurance.

"The insurance industry is showing resilience in face of the COVID-19-led economic downturn," Jerome Jean Haegeli, group chief economist at Swiss Re said. "The magnitude of premium losses will be similar to that seen during the global financial crisis in 2008-09, even though this year's economic contraction of around 4% will be much more severe. Unlike for the global economy, we expect a strong V-shaped recovery in insurance premiums, a remarkable showing considering that the world is currently in the throes of the deepest recession ever."

Haegeli added: "The industry's capital position means it should be able to handle the COVID-19 shock. The upper end of the range of total property and casualty claims estimates by most external insurance analysis is USD 100 billion, similar in scale to losses caused by Hurricanes Harvey, Irma and Maria in 2017, which the industry also absorbed.

"The COVID-19 experience highlights the importance of insurance provision for pandemics. It is a lesson for insurers and policy makers alike who, in the interest of long-term societal and economic stability, should look to develop more public-private partnership solutions for pandemic risks".