The COVID-19 crisis reduced overall global macro resilience – or the ability of societies to absorb shocks – by 18% in 2020 from 2019, according to a sigma report published by Swiss Re Institute. At the same time, the report indicated, the global insurance protection gap reached a record high of $1.4 trillion.
Last year’s weakening in macro resilience was driven by fiscal stimulus in advanced markets to cushion the economic blow of the pandemic, said the report titled “Resilience Index 2021: a cyclical growth recovery, but less resilient world economy.”
“The stimulus drained advanced economies fiscal buffer capacity by more than half, which in turn led to a more-than-20% decline in those economies’ overall macro resilience in 2020,” continued the report. Swiss Re’s Macroeconomic Resilience Index analyzes 10 indicators, including fiscal and monetary policies, insurance penetration, labor market efficiency, economic complexity and income inequality
While the report predicts global macroeconomic resilience will strengthen in 2021, driven by a strong economic recovery, Swiss Re does not expect a full return to pre-pandemic levels in 2021. “Even with strengthening this year from the 2020 lows, world macroeconomic resilience will still be weaker than it was in 2007 before the global financial crisis.”
This weakness will make recovery in economic growth vulnerable to set-backs, the report confirmed.
Out of 31 countries analyzed by Swiss Re’s Macroeconomic Resilience Index, the United States is ranked as the 10th most resilient country, Canada at number 7, New Zealand at number 8, Australia at number 9, Germany at number 11, the United Kingdom at number 16 and France at number 18. Other notable rankings are China at number 19 and India at number 24. See related chart.
At the top of the resilience index are Switzerland (1), Norway (2), Denmark (3), Finland (4), the Netherlands (5) and Sweden (6). At the bottom are Greece (31), Turkey (30), Brazil (29), South Africa (28), Mexico (27) and Russia (26).
“Our study clearly shows that economic resilience pays off. Advanced regions benefitted from both stronger levels of macroeconomic resilience and health insurance resilience than their emerging counterparts,” commented Jérôme Haegeli, Swiss Re Group Chief Economist, in a statement.
“However, to restore macroeconomic resilience and drive long-term growth, deep structural reforms are needed,” he added.
“The global pandemic has accentuated the gap between the rich and poor. It has laid bare the need for governments to focus on rebuilding and promoting social cohesion. Social equity – and at its heart, creating equal opportunities for all – will be a defining feature of a more resilient world,” Haegeli said.
Addressing global insurance resilience, the report noted that global economic recovery and rising risk awareness due to the COVID-19 crisis is likely to bring a strengthening of global insurance resilience in 2021 as insurance demand rises, according to a report published by Swiss Re’s sigma.
As a result of the pandemic crisis, the combined world insurance protection gap for health, mortality and natural catastrophe risks rose by 6.3% to US$1.4 trillion in 2020, said the report. (Editor’s note: The insurance protection gap is the difference between economic losses from an event and those losses covered by insurance. A larger protection gap indicates lower insurance resilience).
Closing the insurance protection gap “would both support long-term economic stability and increase society’s capacity to absorb shocks. Making insurance more widely available and affordable will be essential. But re/insurers and leaders in business and government must make resilience a shared priority,” said Haegeli.
Of the three risks – health, mortality and natural catastrophes – resilience against nat cats remains lowest with a protection gap of more than US$230 billion in 2020, said the report, noting that 76% of global natural catastrophe exposures remained unprotected.
Global resilience against natural disasters has not improved over the last 10 years, which Swiss Re attributed to lower insurance penetration in high-growth emerging economies, alongside higher take-up rates in slow-growth advanced markets.
“In essence, 4 billion people around the world are highly under-protected against natural catastrophes risk,” the report continued.
“By country, the populations of Denmark, France, New Zealand, Australia and UK are most protected,” said sigma, referring to resilience against natural catastrophes.
“The index score of emerging Asia-Pacific is lowest at 3.6%, meaning that more than 96% of potential natural catastrophe losses in the region are unprotected.”
Of the 33 countries ranked by Swiss Re’s Natural Catastrophe Resilience Index, the United States is 12th on the list, Germany is ranked at number 13 and Canada is number 20.