The insurance giant reported the need to restore stability
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The Swiss Re Institute released its fifth resilience sigma report titled Restoring Resilience: The Need to Reload Shock Absorbing Capacity.
The report highlights the growing global protection gaps in natural disasters, crop, mortality, and health insurance, which now demand a staggering $1.8 trillion in annual insurance premiums—a record high. Over the past five years, these protection gaps have increased by 20%, driven by growing economic demand and the impact of inflation.
Despite the alarming increase in the protection gap, the report shows a positive development in society’s ability to withstand unexpected financial shocks, Swiss Re said. Currently, 57% of global risks associated with natural disasters, crop, mortality, and health are covered by insurance—a three percent increase since 2012.
This year’s report introduces a new sustainability indicator focused on food security. It assessed the extent of underinsurance in global crop production, revealing that 60% of the world’s crop production remains uninsured, with the most significant protection gap observed in developing Asia. Closing this gap would require $113 billion in annual insurance premiums for plant coverage.
“We are seeing tectonic changes in economic policies around the world as governments respond to war, a pandemic, and rising inflation,” said Jerome Haegeli, chief economist of the Swiss Re group. “Despite the uncertainty and volatility, the world is much more stable today, and insurance plays a stronger role than it did a decade ago. However, stability remains at 15% which is weaker than before the Global Financial Crisis, and the risk is increased. of additional fiscal support to offset their decline in purchasing power.We expect a slight improvement in macroeconomic stability in 2023.
To improve resilience, Haegeli emphasizes the importance of investing in adaptation and mitigation measures to minimize losses. He emphasized the need for more investment in this area, suggesting the development of stability bonds as a way to attract new sources of capital while delivering economic benefits.
Along with a focus on crop resilience, the report provides updates on overall global economic resilience, health insurance, mortality, and natural disaster trends for 2022.
Key findings from the report include:
- Global stability has increased over the past decade, primarily driven by crop improvements, natural disasters, and health resilience, where available protection is growing faster than overall protection needs.
- Approximately 43% of the world’s risks will remain uninsured by 2022an increase from 46% a decade ago.
- The global protection gap continues to widenn, which reached an all-time high of $1.8 trillion in premium equivalent in 2022, surpassing the $1.5 trillion reported in 2018.
- Strength of health experienced overall growth in 2022, with 78.3% of protection needs covered by insurance, from 77.5% in 2021. The emerging markets of Asia are driving this positive change, which benefited from improved health standards. However, there remains a health protection gap of $889 billion in premium equivalents.
- The mortality protection gap, which measures the insurance needed to fully cover families’ financial needs in the event of a breadwinner’s death, rose slightly to 43.4% by 2022—a long-term $406 billion premium equivalent . This increase can be attributed to inflation, rising wages, and weaker financial markets.
- Natural catastrophe resilience remains low in 2022, with 76% of global exposures lacking coverage. Closing this gap would require an additional $368 billion in future insurance premiums.
- Strategies for building resilience includes investing in loss prevention and expanding insurance coverage.
- Show, pick markets requires an estimated $100 billion in annual investment throughout the decade to develop resilient infrastructure, real estate, and agriculture against natural disasters.
- Strong bonds and other new financial instruments facilitate investment in infrastructure, property, and plant stability. These active investments offer great cost-benefit ratios from 2:1 to 10:1.
- As loss prevention reaches its limitsthe transfer of risk through increased insurance uptake requires closer collaboration between the public and private sectors to facilitate incentives and improve the insurability of risks that are difficult to insure.
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