Health resilience improved globally in 2022, with 78% of protection needs covered by insurance – an increase from 77.5% in 2021, according to Swiss Re.
However, mortality protection fell widening the gap to a record high, the reinsurer said in its Restoring resilience: The need to reload shock-absorbing capacity report.
The increase in health resilience was driven by emerging Asian markets, where health standards have improved over the past five years, with the remaining protection gap representing US$889bn in insurance premium equivalent.
Improvement was also seen in the health resilience index, which improved by 115bps as the protection available rose faster than the protection need.
“Healthcare system development, including the swift take-up of affordable online private medical insurance and government-endorsed inclusive medical products, played a role,” the report said.
Economy driving protection shortfall
In contrast the situation was reversed for mortality protection with inflation and pay increases the leading reasons.
“Global mortality resilience deteriorated in 2022 from 2021 and the protection gap widened to an all-time high,“ the reinsurer said.
“This is in line with our expectations, given unfavourable economic conditions, in which high inflation has eroded household purchasing power, surging wages have increased protection needs and volatile financial markets have depleted household assets.”
The protection gap for mortality, in terms of insurance required to fully cover families’ financial needs when a breadwinner passes away, increased slightly in 2022 to 43.4%, equated to an all-time high of US$406bn in premium equivalent.
“The increase has been driven by inflation, wage rises and weaker financial markets,” Swiss Re said.
“Life insurance has helped to improve protection in most countries, particularly those with higher resilience, but more still needs to be done.”
The situation was worse in developing countries.
“Standing at 29% in 2022, emerging markets mortality resilience was about half that of advanced markets, with a US$263bn protection gap, 65% of the global total in premium equivalent terms,” the report said.
The Covid effect
The report also addressed the impact of Covid which had worsened the gap in mortality protection.
Surveys by Swiss Re showed the pandemic prompted consumers, including in emerging markets, to consider purchasing new or additional life insurance, but this had not had enough of an impact to ease financial burdens.
“We expect the volume of new policies to plateau and the share of risk premiums in total life premiums to stay at around 23% by 2025,” the report said.
“Despite higher life insurance coverage, mortality resilience is worse than pre-pandemic levels in most regions.
“Unfavourable economic conditions are unlikely to change in the near term, as we expect global GDP growth to slow significantly this year (2.1%) and CPI inflation to stay elevated at almost 6% on average.
“A potential severe recession or entrenched inflation for the next 12–18 months implies downside risks to insurance purchases and financial assets and so a likely deterioration in the mortality resilience index,“ it added.
The report warned that with government finances stretched in many economies, social security benefits would likely lag protection needs.
“The silver lining is that strong job markets, above-trend wage growth and higher interest rates could lift demand for savings products, but the net effect may be small,” the report said.
Rising gap but better prepared
Overall, the report found that closing global protection gaps for natural catastrophes, crop, mortality and health insurance would require US$1.8trn in insurance premium annually – again a record high.
The protection gap has risen by a cumulative 20% in the past five years, reflecting increased demand from economic growth and the effects of inflation.
But on the positive side, despite a record-high protection gap, the report said society’s ability to absorb unexpected financial shocks had improved over the past 10 years, with 57% of the global risks across natural catastrophes, crop, mortality and health now covered by insurance.
That represented an increase of three percentage points from 2012.
Jerome Haegeli, group chief economist of Swiss Re said: “We’ve seen tectonic shifts in economic policies across the globe as governments have responded to war, a pandemic, and rising inflation.
“Despite the uncertainty and volatility, the world is more resilient today, and insurance is playing a stronger role than it did a decade ago.
“However, resilience remains 15% weaker than before the global financial crisis and the risk is elevated.
“The inflation-taming monetary tightening process has laid bare financial stability and recession risks, while persistent inflation increases households’ need for more fiscal support to offset their erosion of purchasing power.
“We expect little improvement in macroeconomic resilience in 2023,” he said.
Haegeli called for more investment into adaptation and mitigation measures to reduce losses in the first place.
“More investment is needed in this area. For example, the development of resilience bonds can attract new sources of capital, while delivering economic benefits,” he concluded.