COMMENT: A year to remember for all the wrong reasons

Whilst this year was boom time for the likes of Amazon, Netflix and Zoom, few will miss 2020 and its restrictions, worries, cancellations and closures. In the deepest recession of our lifetimes, world gross domestic product is expected to contract by 4.1% this year. The focus is now firmly on recovery.

According to Swiss Re’s latest sigma study, it will be a slow and uneven one throughout 2021, but one to which the insurance industry has much to contribute. Global GDP is forecast to grow by 4.7% in 2021 in real terms, below the market expectation of 5.2% growth. Amid the COVID-related economic shock, global insurance markets have been less severely impacted than previously thought, with total premium volumes in 2020 estimated to have declined by 1.4% in real terms, less than the earlier anticipated 2.8% drop. Premium growth is forecast to recover quickly to an average annual 3.6% growth in 2021 and 2022.

If Swiss Re’s expectations are on the money, volumes will exceed pre-pandemic levels by the end of next year, led by advanced Asia and the US, where a hard commercial insurance market will boost premiums. China will remain the fastest growing market with premiums up an estimated 10% annually over the next two years, largely thanks to a strong health business. The other emerging markets will see aggregate premium growth of nearly 4% annually. Data analytics are expected to drive a greater understanding of customer needs and to help insurers provide more tailored and affordable offerings, with growth expected in areas such as pay-as-you-go cover. In terms of individual economic resilience levels, the pandemic is expected to impact each economy depending on government policy and local capacity to absorb shocks.

Preliminary data from Swiss Re’s report suggest fiscal responses will be the key differentiator. Among the large, advanced economies, the UK, Japan and the US are expected to see their fiscal buffers depleted most. Income inequalities are anticipated to widen further as so many lower paid jobs have been cut. The official euro-area unemployment rate, for instance, has remained steady at around 7.9%. The shadow unemployment rate, however, which takes into consideration inactive and furloughed workers as well as the officially unemployed, has reached almost 25% in Europe’s four largest economies: Germany, UK, France and Italy.

Jerome Jean Haegeli, Swiss Re Group chief economist, says that a sustainable recovery requires a considerable rethink. “For sustainable economic recovery, we need a policy reset. Public policy should focus on areas such as infrastructure, technology and climate. Building new sustainable infrastructure will have a significant impact on GDP growth. “In addition to smarter spending, policymakers should make more use of public-private partnerships and establish the operational and regulatory frameworks to enable greater participation of private-sector finance, including insurers’ assets, in the real economy.”

Whilst hopes of a vaccine are raised, there is still a great deal of uncertainty over how the ongoing crisis will evolve, and that is not to mention the myriad other risks facing businesses today including but not limited to the credit crisis, trade wars and heightened terrorism risk – all of which have contributed to making 2020 a year to remember for all the wrong reasons.

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