Climate change and digitalization are major trends influencing the global economy and insurance markets. Rapid decarbonisation is becoming increasingly necessary, and how societies approach the transition to a green economy will determine the economic outlook. The insurance industry can help the transition to a low-carbon economy by not only absorbing disaster losses, but also by encouraging long-term infrastructure investments that help mitigate the impact of volatile extreme weather. Adoption of digital technologies is not only contributing to increased global productivity growth, but Swiss Re research also discovered that the pandemic has changed consumers' receptivity to interacting with insurance digitally, indicating potential growth. A third significant trend is the growing disparity between countries' growth rates and socioeconomic indicators such as inequality – a potential downside risk.
“The economic recovery we are experiencing is cyclical and not structural, with macroeconomic resilience weaker today than before the COVID-19 crisis. As such, we should be anything but complacent. Given its capacity and expertise to absorb risks, the insurance industry is crucial in making societies and economies more resilient. Yet for inclusive and sustainable growth, everyone must be on board. Green growth is sustainable only if it is also inclusive. We have a unique opportunity to build a better market system. For this, all stakeholders will need to accept and internalise the costs of climate change, and policymakers to take into account the distributional effects of their economic policies across their populations. This will help to create the transition we need for a sustainable path to a net-zero economy by 2050," said Jerome Haegeli, Swiss Re Group Chief Economist.
According to the Swiss Re Institute's sigma study, global GDP growth will be strong in 2021, at 5.6 percent, before slowing to 4.1 percent in 2022 and 3.0 percent in 2023. The prevailing near-term macro risk is inflation, which is being fueled by the energy crisis and ongoing supply-side issues. Price pressure is expected to be most severe in emerging markets, as well as in the United Kingdom and the United States.
The insurance industry's resilience is reflected in the market's recovery.
According to Swiss Re Institute, global non-life premiums will rise by 3.3 percent in 2021, 3.7 percent in 2022, and 3.3 percent in 2023. After a year of above-average losses, property-catastrophe rates are expected to improve in 2022. Casualty rates are expected to rise further next year as a result of ongoing social inflation, while personal lines are expected to benefit from early signs of improving motor pricing in the United States and Europe. Global health and medical insurance premiums are expected to rise as the US economy grows and advanced market demand remains stable. Expansion in emerging markets is expected to be robust, with China expected to grow by 10% in each of the next two years, owing largely to high demand for medical insurance, including critical illness coverage.
Premiums for global life insurance are expected to rise by 3.5 percent in 2021, 2.9 percent in 2022, and 2.7 percent in 2023. Protection-type products should be in high demand, thanks to increased risk awareness, a recovery in group business, and increased digital interaction. Savings growth is expected to be moderate over the next two years, owing to a slight improvement in government bond yields and a recovery in employment and household incomes. Excess mortality is showing a mixed trend as the pandemic continues to affect the life insurance industry. Unlike many European countries, the United States has experienced continuous excess mortality since the outbreak began, and death benefits paid have increased in the first half of this year. Latin American life insurers have faced unprecedented pandemic claims as the region has been particularly hard hit by COVID-19. In Brazil, the life insurance benefit ratio more than doubled in April 2021, while the pandemic is the most expensive event ever recorded for the local insurance industry in Mexico, with insured losses totaling USD 2.5 billion over 18 months as of September 2021. This amount exceeds the USD 2.4 billion loss caused by Hurricane Wilma in 2005.
As people become more aware of the risks they face, there is a greater demand for insurance coverage. The pandemic has highlighted the critical role of the insurance industry as a risk absorber in times of crisis, providing financial relief to households, businesses, and governments. Simultaneously, supply chain disruptions demonstrate that better protection is required to improve societal resilience, and this year's record-breaking weather extremes add urgency to the global race to net zero. Consumers are also enthusiastic about digital and online insurance, which is expected to grow rapidly. However, rising inequality may exacerbate social inflation, defined as an increase in insurance claims caused by high litigation costs.
"Market conditions suggest that positive pricing momentum will continue across all lines and regions. Inflation-driven higher claims development in all lines of business, continued social inflation in the US and persistently low interest rates will be the main factors for market hardening," said Jerome Haegeli.