Industry has a Trillion Dollar Opportunity says Sigma Report

Swiss Re’s research arm kicked off the 2019 Monte Carlo Rendezvous with a new Sigma report warning the global re/insurance industry has to solve the issue of the $1.2 trillion protection gap.

It comes as the results of the Swiss Re Institute’s (SRI) and the London School of Economics’ (LSE) Macroeconomic Resilience Indices which found the world economy is less resilient now than in 2007 at the onset of the global financial crisis.

The report added that it was not all bad news as separate insurance resilience indices show that the resilience of households against three main areas of risk – natural catastrophes, mortality and healthcare spending – has improved in most regions since the turn of the century.

However the reinsurers’ Chief Economist said that there remains a significant protection gap in those three areas and it was one the industry had to strive to fill.

“It is a trillion-dollar opportunity for the insurance industry,” said Jerome Jean Haegeli. “The insurance industry has largely kept pace with growing loss potentials and can do more to improve resilience. Emerging markets, in particular, benefit more strongly from insurance protection than mature economies, which often have greater access to alternative sources of funding.”

The new macroeconomic resilience indices use data from 2007 to 2018 for 31 countries, representing about 75% of the world gross domestic product (GDP). They are composed of a broad spectrum of variables to provide a more holistic assessment of economic health than GDP alone. The analysis shows that 80% of the sample countries had lower resilience scores in 2018 than in 2007. The main drivers of this trend have been exhaustion of monetary policy options in many developed economies and a challenging operating environment for the banking sector, even as financial institutions are stronger since the crisis.

“Considering the probability of recession in the US next year of 35% and the global ramifications thereof, it is more important than ever to assess the underlying resilience of our economies and look beyond the traditional GDP measures,” Mr Haegeli continued. “In aggregate, policy buffers against economic shocks today are thinner than in 2007. Ultra-accommodative monetary policy over the past years leaves limited future room to manoeuvre for central banks, while increasing their dependency on financial markets. Coupled with insufficient progress on structural reforms, this is likely to result in more protracted recessions in the future.”

He added: “Progressing and finalizing the European Capital Market Union will be key to improving resilience in the euro area.

“This would deepen financial markets and diversify the region’s funding sources, taking some pressure off monetary policy. Moving forward with bank consolidation as well as overhauling labour markets are also top priorities.”