In a recent report titled “Restoring Resilience: The Need to Reload Shock-Absorbing Capacity,” the Swiss Re Institute has shed light on the expanding global protection gaps. These gaps encompass various areas such as natural disasters, crop insurance, mortality coverage, and health insurance, and they now require a staggering annual insurance premium of US$1.8 trillion, reaching a record high. Over the past five years, these protection gaps have grown by 20%, driven by increasing economic demands and the impact of inflation.
Despite the concerning rise in the protection gap, the report also reveals a positive development in society’s ability to withstand unforeseen financial shocks. Swiss Re noted that currently, 57% of global risks associated with natural catastrophes, crop failures, mortality, and health issues are covered by insurance—a three-percentage-point increase since 2012.
This year’s report introduces a new indicator of resilience focused on food security. It examines the extent of underinsurance in global crop production and unveils that 60% of the world’s crop production remains uninsured, with the most significant protection gap observed in emerging Asia. Closing this gap would necessitate an annual insurance premium of US$113 billion for crop coverage.
Jerome Haegeli, the group chief economist at Swiss Re, commented on the economic policies implemented worldwide in response to factors like war, pandemics, and rising inflation. “Despite the uncertainty and volatility, the world is more resilient today, and insurance is playing a stronger role than it did a decade ago,” Haegeli said. However, he said that resilience remains 15% weaker than before the Global Financial Crisis, and the risks remain elevated.
The tightening of monetary policies to control inflation has exposed financial stability and recession risks, while persistent inflation has increased the need for households to receive more fiscal support to offset the erosion of their purchasing power. Haegeli expects little improvement in macroeconomic resilience in 2023.
To strengthen resilience, Haegeli highlighted the importance of investing in adaptation and mitigation measures to reduce losses. He pointed out the need for increased investment in this area and suggested the creation of resilience bonds as a means to attract new sources of capital while delivering economic benefits.
The report also provides updates on overall global economic resilience, health insurance, mortality coverage, and natural catastrophe trends for 2022.
