Author Katrina Shanks, CEO Financial Advice NZ. Article originally published in riskinfo.nz.
OPINION: As many of you already know, I have always been an advocate of knowledge-sharing, particularly when it comes to insights that provide our sectors with a Big Picture perspective. And this is what the latest Swiss Re’s resilience sigma report does.
It’s dense research, packed with insights and statistics relevant to insurance professionals worldwide. So, I thought I’d share some of the key takeaways that stood out to me.
Global protection gaps are widening
The overarching message of the report is that, globally, there is an escalating protection gap across various areas, including life and health insurance. As Swiss Re put it, the world economy needs a ‘sustained reload in resilience’.
Across all types of insurance protection, Swiss Re estimates the global protection gap at US$1.8 trillion in premium equivalent terms for 2022 – up by 20% from 2018. These numbers are not just statistics. They reflect the mounting economic pressures and the impacts of inflation on the cost of insurance. And while, as it turns out, macro-economic resilience has returned to pre-pandemic levels, it remains 15% weaker than in 2007 (pre-GFC), with little improvement expected in 2023 and 2024.
Health resilience is a ‘mixed bag’
When it comes to health resilience, Swiss Re’s report brings a mixed bag of news. Encouragingly, global health resilience has increased, largely thanks to improved living and health standards in emerging countries. But the pandemic has been a stark reminder of the significant disparities in access to quality healthcare around the world: with backlogs in the public health system, people who lack adequate coverage have limited financial and physical access to care.
Meanwhile in advanced markets, where protection levels are typically higher, health resilience has actually decreased last year. Why? A cost-of-living crisis weighed down household expenses, public health programmes wound down, and health treatments were just resuming post-pandemic. On top of this, an ageing population and advancements in medical technology are leading to higher healthcare costs and, consequently, protection needs.
As Swiss Re suggests, there’s no silver bullet to fix these issues. It would require a multifaceted approach, which includes investments in addressing underinsurance but also innovative solutions to manage healthcare costs and ensure the sustainability of our systems. Globally, we have made strides in improving health resilience, but the job isn’t done yet.
Life insurance offers a critical lifeline
According to Swiss Re, life insurance is another area worth focusing on. Currently, mortality resilience around the world is still quite low, meaning most households are vulnerable to the loss of a breadwinner. The report estimates that the global mortality protection gap has widened in 2022, driven by the rising cost of living and weakening financial markets.
This is a societal issue we’re all too familiar with. Last year’s reports suggest that Kiwis are significantly underinsured, with two-thirds of households having a protection gap of some sort.
There’s a common belief that, in times of hardship, we can lean on the support of our wider family and community. But unfortunately, we know it’s not a sustainable solution, especially with the current inflation and high mortgage rates. The sudden death of a breadwinner can lead to an abrupt loss of income, making it difficult for families to keep up with day-to-day expenses, let alone larger financial obligations like mortgage repayments.
This is why life insurance is such an important tool to have. The good news is that the global pandemic has, in many ways, underscored the value of life cover. According to Swiss Re, the health crisis has prompted many consumers around the world to consider purchasing new or additional life insurance.
If more and more people understand the importance of being prepared, we can begin to significantly narrow the gap – providing peace of mind for more families, and ultimately making a real difference in our communities. It’s a challenge, but it’s one I believe we can rise to, together.
The socio-economic power of insurance
The report raises an important point, which is worth highlighting here: adequate insurance isn’t just about individuals, but also societies at large. In a high-inflation, high-interest rate environment like the one we’re living in now, insurance provides a cushion to soften the blow of unexpected financial shocks – minimising the impact on public finances and lessening the need for private borrowing.
Insurance encourages long-term financial planning and other proactive, forward-thinking behaviours that benefit both the individual policyholder and the broader community. When individuals are adequately protected, they are less likely to require assistance or fall into debt, which can have a ripple effect on the economy. This, in turn, allows the public system to direct their resources elsewhere. Plus, insurance can promote risk-mitigating behaviours. Many insurers now support and reward healthy lifestyles, which in turn can lead to lower healthcare costs and a healthier population in the long run.
The Swiss Re report serves as a timely reminder that we need to continue to work, to close the protection gaps that exist. Educating people on the value of insurance is about fostering a culture of preparedness and resilience across the wider fabric of society – building a more financially secure and sustainable future for us all.
We are in your corner
At Financial Advice NZ, we continue to support our members in their day-to-day endeavours as well as advocating for the financial services sector and promoting the value of quality advice. If you’d like to know more about our initiatives, don’t hesitate to get in touch.
