The insurance industry is poised to overcome the COVID-19-induced global recession, according to a report by Swiss Re Institute.
The recession – the sharpest economic contraction since the 1930s – will lead to a slump in demand for insurance this year, especially for life products, Swiss Re Institute predicted. Global premiums are expected to contract by 6% for life cover and 0.1% for non-life covers. However, total premium volumes are expected to return to pre-crisis levels in 2021, according to the institute. Non-life premium volumes are expected to rise to above pre-crisis levels, while life volumes are expected to remain below. Emerging economies, led by China, are expected to drive the industry comeback.
“The insurance industry is showing resilience in the face of the COVID-19-led economic downturn,” said Jerome Jean Haegeli, group chief economist at Swiss Re. “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… will be much more severe. Unlike 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.”
After growing by 2.2% in 2019, global life premiums are expected to contract by 6% this year. The non-life segment won’t be as heavily impacted, with premiums forecast to be essentially flat (-0.1%) after growing by 3.5% in 2019.
There’s uncertainty about the pandemic’s ultimate claims burden, with the median of current estimates at around US$55 billion, according to Swiss Re Institute. The insurance industry is currently well-capitalized to absorb the losses, however.
“The industry’s capital position means it should be able to handle the COVID-19 shock,” Haegeli said. “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 the losses caused by Hurricanes Harvey, Irma and Maria in 2017, which the industry also absorbed,” Haegeli said. “The COVID-19 experience highlights the importance of insurance provision for pandemics. It is a lesson for insurers and policymakers alike who, in the interest of long-term societal and economic stability, should look to develop more public-private partnership solutions for pandemic risks.”