APAC sees improvements in insurance resilience – Swiss Re report

Region bucks the worldwide trend

APAC sees improvements in insurance resilience – Swiss Re report

Insurance News

By Gabriel Olano

A report by industry giant Swiss Re has revealed that the world economy is less resilient now compared to 2007, at the onset of the global financial crisis. However, Asia-Pacific has shown itself as a bright spot, with the region’s insurance resilience improving for both advanced and emerging economies.

According to Swiss Re’s latest sigma report, there is a US$1.2 trillion composite protection gap globally for three main areas of risk – natural catastrophes, mortality, and healthcare spending. This was identified through new macroeconomic resilience indices jointly developed by the Swiss Re Institute (SRI) and the London School of Economics (LSE).

The indices used data from 2007 to 2018 for 31 countries, representing about 75% of the world gross domestic product. The analysis showed that 80% of the sample countries had lower resilience scores in 2018 than in 2007. According to the report, the main drivers of this trend were exhaustion of monetary policy options in many developed economies and a challenging operating environment for the banking sector, despite financial institutions being stronger since the crisis.

North America (USA and Canada) remained as the most resilient region since 2007, but its resiliency score declined from 0.85 to 0.79 during the period. Meanwhile, Europe saw the largest decline, from 0.69 to 0.68.

Asia-Pacific remained relatively stable – from 0.59 to 0.57. According to the report, resilience levels in China, Japan and Australia improved slightly, while India’s resilience declined mostly due to lower index scores for the financial-sector components, including banking industry environment, financial market development and insurance penetration.

Aside from the macroeconomic indices, Swiss Re Institute also developed insurance resilience indices, which are based on measures of protection available relative to those needed. These micro-level indices consider how insurance helps households withstand the following shock events: natural catastrophes, death of a household’s main earner, and healthcare spending.

“The rising frequency of extreme weather events, geopolitical and macroeconomic instability, ageing populations and rising healthcare spending have transformed the risk landscape in Asia and globally,” said Russell Higginbotham, CEO for reinsurance and regional president for Swiss Re Asia. “Swiss Re’s Resilience Indices are aimed at raising awareness of the protection gap and driving greater collaboration among governments, regulators, insurers and businesses to build societal resilience for the long-term.”

Swiss Re noted the progress made in closing the health protection gap in Asia-Pacific. Among its sub-regions, Oceania showed the largest improvement in insurance resilience where the index increased by 18 percentage points since the turn of the century to 77%.  Oceania also had the highest resilience score for natural catastrophe risks of any region in the world at 69%. According to Swiss Re, this reflects compulsory earthquake covers in New Zealand and success in efforts to increase the uptake of flood insurance in Australia.

Despite a US$456 billion insurance gap in emerging APAC, these economies have shown signs of progress, such as strong gains in resilience against healthcare spending risk, reflecting the major universal health coverage-inspired reforms that have been implemented in China, India, Indonesia, the Philippines, Thailand, and Vietnam, the report said.

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