The global insurance industry is set to recover “strongly” from the COVID-19 recession, with brokers and insurers being more resilient than other sectors in handling the economic pull-back, according to Swiss Re.
In the latest Swiss Re Institute report, it was outlined that global insurance premium volumes will reach pre-pandemic levels as soon as next year, despite the demand for insurance throughout 2020 slowing due the virus.
“The insurance industry is showing resilience in the face of the COVID-19-led economic downturn,” Jerome Jean Haegeli (pictured), group chief economist at Swiss Re said. “The magnitude of premium losses will be similar to that seen during the global financial crisis in 2008-2009, even though this year’s economic contraction of around 4% will be much more severe.”
Although this year’s recession will be the deepest since the Great Depression of the 1930s, it will also be the most short-lived. Despite insurers largely reporting gross profit losses for Q1 2020, Haegeli says the industry can “absorb the shock.”
“There is exceptional uncertainty about what the ultimate claims burden from the pandemic will be, with the mid-point of the range of current estimates from various external and public sources at around US$55 billion.
“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 US$100 billion, similar in scale to losses caused by Hurricanes Harvey, Irma and Maria in 2017, which the industry also absorbed,” he said.
Unlike the global economy in general, Haegeli says we can expect a strong V-shaped recovery in insurance premiums – a “remarkable showing,” he said.
“There is no doubt that the insurance sector has to face a slump in demand in the near term,” he explained. “The widespread lockdown or social distancing measures also affects the sales or distribution of insurance products. Nevertheless, the experience of this year’s health and economic crises could be a ‘wake-up’ call for higher risk awareness, translating into higher willingness for insurance take-up and a higher demand for risk protection across many lines of business.
Insurers and brokers should use the opportunity to raise awareness of the value of insurance across lines of business and client groups globally, Haegeli explains.
“Pandemic cover will not be a fully insurance risk, due to its lack of diversification, but the crisis will raise awareness for financial risk in general and spark innovation for new covers,” he said.
Accelerated digital transformation, the peak of globalisation and parallel supply chains should also be examined by brokers and insurers, as a way to counter the virus and make a strong return in 2021.
“Lockdowns and the implementation of social distancing rules has highlighted the importance and value of digitalisation through all steps of the insurance value chain,” Haegeli continued. “Distribution models need to be digitised to continue selling. Usage-based insurance products are likely to become more attractive as they adjust quickly to changes in behaviour or turnover. Furthermore, approaches to digital claims handling and loss adjustment will become more important in order to continue to settle claims in the environment of restrictions on mobility.
“The pandemic has also highlighted the risk of non-diversified supply chains. While… near and back-shoring will make them more costly, these changes will also provide insurance growth opportunities in countries where new productions are located, including in property, engineering and surety lines of business.”