Strong growth forecast for global insurance markets as demand for risk protection increases, says Swiss Re Institute
Global insurance premiums expected to grow by 3.4% in real terms in 2021, 3.3% in 2022 and 3.1% in 2023
World insurance market set to exceed USD 7 trillion in premiums for the first time by mid-2022, earlier than expected
Insurance profitability supported by heightened risk awareness in both the life and non-life segments in wake of COVID-19 pandemic, and continued strong rate hardening
Swiss Re Institute’s latest sigma study forecasts the global insurance industry to reach a new record in global premiums by mid-2022, exceeding USD 7 trillion. This comes earlier than Swiss Re estimated in July and reflects rising risk awareness, increasing demand for protection and rate hardening in non-life insurance commercial lines. The insurance industry outlook is also supported by a strong cyclical recovery from the COVID-19 shock, but economic growth is expected to slow in the next two years due to an unfolding energy price crisis, prolonged supply-side issues, and inflation risks. Long-term structural support for growth is needed, as Swiss Re Institute’s resilience analysis in this sigma report shows.
Climate change and digitalisation are significant trends shaping the world economy and insurance markets. Rapid decarbonisation is becoming imperative and societies’ approach to transitioning to a green economy will determine the economic outlook. The insurance industry can support the transition to a low-carbon economy, not only by absorbing disaster losses but also by promoting sustainable infrastructure investments that help mitigate the impact of volatile extreme weather. Adopting digital technologies is not only playing a role in increasing global productivity growth, but Swiss Re research also found that the pandemic has transformed consumers’ receptiveness to interacting with insurance digitally, pointing to growth potential.[1] A third significant trend is the growing divergence of countries’ growth and socio-economic 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.
Swiss Re Institute’s sigma study forecasts that global GDP growth will be strong in 2021, at 5.6%, slowing to 4.1% in 2022 and 3.0% in 2023. Inflation is the prevailing near-term macro risk, fuelled by the energy crisis and prolonged supply-side issues. The price pressure is expected to be most acute among emerging markets and in the UK and US.
Market rebound reflects resilience of insurance industry
Swiss Re Institute estimates that global non-life premiums will grow by 3.3% in 2021, 3.7% in 2022 and 3.3% in 2023. Property-catastrophe rates are forecast to improve in 2022 after a year of above-average losses. Casualty rates should also be stronger next year due to ongoing social inflation while personal lines are expected to benefit from early signs of improving motor pricing in the US and Europe. Global health and medical insurance premium is expected to rise, driven by growth in the US economy and stable advanced market demand. Expansion in emerging markets is expected to be strong, with China projected to grow by 10% in each of the next two years, largely driven by strong demand for medical insurance, including critical illness covers.
Global life premiums are expected to increase by 3.5% in 2021, 2.9% in 2022 and 2.7% in 2023. Protection-type products should see strong demand, supported by higher risk awareness, a recovery in group business and increased digital interaction. Savings business is expected to grow moderately in the next two years, reflecting a slight improvement in government bond yields and a recovery in employment and household incomes. As the pandemic continues to affect the life insurance industry, excess mortality shows a mixed trend. Unlike many European countries, the US has experienced continuous excess mortality since the start of the pandemic and death benefits paid increased in the first half of this year. Life insurers in Latin America have faced unprecedented pandemic claims as the region has been hit particularly hard by COVID-19. In Brazil, the life insurance benefit ratio more than doubled in April 2021, while the pandemic is the costliest event ever recorded for the local insurance industry in Mexico, totalling USD 2.5 billion in insured losses over 18 months as of September 2021. This surpasses the USD 2.4 billion loss from hurricane Wilma in 2005.
Rising risk awareness is generating demand for more insurance protection. The pandemic shock has highlighted the important role the insurance industry plays as a risk absorber in times of crisis by providing financial relief to households, businesses and governments. At the same time, supply chain disruptions show that better protection is required to improve societal resilience and record-breaking weather extremes this year add urgency to the global race to net zero. Consumers also welcome digital and online insurance, and it is expected to grow rapidly. However, increasing inequality could exacerbate social inflation, which is defined as the increase in insurance claims driven by large 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.
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World economy set to lose up to 18% GDP from climate change if no action taken, reveals Swiss Re Institute’s stress-test analysis
New Climate Economics Index stress-tests how climate change will impact 48 countries, representing 90% of world economy, and ranks their overall climate resilience
Expected global GDP impact by 2050 under different scenarios compared to a world without climate change:-18% if no mitigating actions are taken (3.2°C increase);-14% if some mitigating actions are taken (2.6°C increase);-11% if further mitigating actions are taken (2°C increase);-4% if Paris Agreement targets are met (below 2°C increase)
Economies in Asia would be hardest hit, with China at risk of losing nearly 24% of its GDP in a severe scenario, while the world’s biggest economy, the US, stands to lose close to 10%, and Europe almost 11%
Climate change poses the biggest long-term threat to the global economy. If no mitigating action is taken, global temperatures could rise by more than 3°C and the world economy could shrink by 18% in the next 30 years. But the impact can be lessened if decisive action is taken to meet the targets set in the Paris Agreement, Swiss Re Institute’s new Climate Economics Index shows. This will require more than what is pledged today; public and private sectors will play a crucial role in accelerating the transition to net zero.
Swiss Re Institute has conducted a stress test to examine how 48 economies would be impacted by the ongoing effects of climate change under four different temperature increase scenarios. As global warming makes the impact of weather-related natural disasters more severe, it can lead to substantial income and productivity losses over time. For example, rising sea levels result in loss of land that could have otherwise been used productively and heat stress can lead to crop failures. Emerging economies in equatorial regions would be most affected by rising temperatures.
Major economies could lose roughly 10% of GDP in 30 years
In a severe scenario of a 3.2°C temperature increase, China stands to lose almost one quarter of its GDP (24%) by mid-century. The US, Canada and the UK would all see around a 10% loss. Europe would suffer slightly more (11%), while economies such as Finland or Switzerland are less exposed (6%) than, for example, France or Greece (13%).
Thierry Léger, Group Chief Underwriting Officer and Chairman of Swiss Re Institute, said: “Climate risk affects every society, every company and every individual. By 2050, the world population will grow to almost 10 billion people, especially in regions most impacted by climate change. So, we must act now to mitigate the risks and to reach net-zero targets. Equally, as our recent biodiversity index shows, nature and ecosystem services provide huge economic benefits but are under intense threat. That’s why climate change and biodiversity loss are twin challenges that we need to tackle as a global community to maintain a healthy economy and a sustainable future.“
Climate Economics Index ranks countries’ resilience to climate change
Along with evaluating each country’s expected economic impact from climate risks, Swiss Re Institute also ranked each country on its vulnerability to extreme dry and wet weather conditions. In addition, it looked at the country’s capacity to cope with the effects of climate change. Put together, these findings generate a ranking of countries’ resilience to the impacts of climate change.
The ranking displays a similar view to the GDP impact analysis: Countries most negatively impacted are often the ones with fewest resources to adapt to and mitigate the effects of rising global temperatures. The most vulnerable countries in this context are Malaysia, Thailand, India, the Philippines and Indonesia. Advanced economies in the northern hemisphere are the least vulnerable, including the US, Canada, Switzerland and Germany.
Public and private sectors play a crucial role in accelerating climate action
Given the consequences highlighted in Swiss Re Institute’s analysis, the need for action is indisputable. Coordinated measures by the world’s largest carbon emitters are crucial to meet climate targets. The public and private sectors can facilitate and accelerate the transition, particularly regarding sustainable infrastructure investments that are vital to remain below a 2°C temperature increase. Given the long-term horizon of their liabilities and long-term capital to commit, institutional investors such as pension funds or insurance companies are also ideally positioned to play a strong role.
Jérôme Haegeli, Swiss Re’s Group Chief Economist, said: “Climate change is a systemic risk and can only be addressed globally. So far, too little is being done. Transparency and disclosure of embedded net-zero efforts by governments and the private sector alike are crucial. Only if public and private sectors pull together will the transition to a low-carbon economy be possible. Global cooperation to facilitate financial flows to vulnerable economies is essential. We have an opportunity to correct the course now and construct a world that will be greener, more sustainable and more resilient.
Our analysis shows the benefit of investing in a net-zero economy. For example, adding just 10% to the USD 6.3 trillion of annual global infrastructure investments would limit the average temperature increase to below 2°C. This is just a fraction of the loss in global GDP that we face if we don’t take appropriate action.“
Mitigating climate change requires a whole menu of measures. More carbon- pricing policies combined with incentives for nature-based and carbon-offsetting solutions are needed, as well as international convergence on taxonomy for green and sustainable investments. As part of financial reporting, institutions should regularly disclose how they plan to achieve the Paris Agreement and net-zero emission targets. Re/insurers also play a role in providing risk transfer capacity, risk knowledge and long-term investment, using their understanding of risk to help households, companies and societies mitigate and adapt to climate change.
Climate Economics Index: mid-of-century
The Climate Economics Index looks at which economies would be hardest hit, most exposed and best positioned to adapt to climate risk. It ranks countries based on: Expected economic impact from “chronic” climate risks linked to gradual temperature rises; the degree to which it is vulnerable to extreme weather events and severe hot/wet conditions; and a country’s current adaptive capacity.
Swiss Re Institute estimates USD 83 billion global insured catastrophe losses in 2020, the fifth-costliest on record
Natural catastrophes caused USD 76 billion of global insured losses, up 40% from 2019, mostly from secondary peril events such as severe convective storms and wildfires in the US
Very active hurricane season with record number of named storms, but only moderate insured losses of USD 20 billion
Losses from secondary peril events are forecast to increase, driven by climate change
Insurance industry losses from natural catastrophes and man-made disasters globally amounted to USD 83 billion in 2020, according to Swiss Re Institute’s preliminary sigma estimates. This makes it the fifth-costliest year for the industry since 1970. Losses were driven by a record number of severe convective storms (thunderstorms with tornadoes, floods and hail) and wildfires in the US. These and other secondary peril events around the world accounted for 70% of the USD 76 billion insured losses from natural catastrophes1. A very active North Atlantic hurricane season triggered an additional USD 20 billion of insurance claims, moderate compared to the record seasons of 2005 and 2017. The insurance industry covered 45% of global economic losses in 2020, above the ten-year-average of 37%.
Climate change is expected to exacerbate secondary peril events as more humid air and rising temperatures create more extreme weather conditions. These favour the onset and spread of events such as wildfires, storm surges and floods.
”As with COVID-19, climate change will be a huge test of global resilience. Neither pandemics nor climate change are ‘black swan’ events. But while COVID-19 has an expiry date, climate change does not, and failure to ‘green’ the global economic recovery now will increase costs for society in future,” said Jerome Jean Haegeli, Swiss Re Group Chief Economist. ”This year’s natural disasters impacted regions with more insurance cover in place, providing vital support to the people and communities affected and enhancing their financial resilience.”
In the US, a record number of severe convective storms caused devastation throughout the year, likely leading to record annual losses in the country for this peril. Australia and Canada suffered significant losses from hail damage in 2020. In January, hailstorms in southeastern Australia caused insured losses of over USD 1 billion, while Canada experienced its costliest-ever hail event in Calgary in June, which led to losses of USD 1 billion.
Fires also contributed to secondary peril losses for insurers. Wildfires in the US from mid-August chiefly caused the high insured losses, though Australia’s 2019 fire season, the longest and most destructive ever recorded, was still burning in early 2020. In the US states of California, Oregon and Washington State, more than 800 wildfires burned close to 6 million acres, destroying thousands of structures and triggering billions in insured claims. Although less than the record losses of 2018 and 2017, 2020 will be one of the costliest for fires.
Further secondary perils included severe floods in several provinces along the Yangtze River in China from May, causing industry insured losses of roughly USD 2 billion.
Record number of hurricanes, but only moderate losses
The North Atlantic hurricane season brought a record 30 named storms in 2020, including five named storms making landfall in the US state of Louisiana alone, again the highest on record. This year a uniquely conducive set of atmospheric and oceanic conditions was predicted to generate a well-above-average number of storms and landfalls. However, most US landfalls did not hit densely populated areas in 2020, resulting in relatively low insured losses of USD 20 billion, far lower than in the previous record hurricane seasons of 2017 (Harvey, Irma and Maria: USD 97 billion) and 2005 (Katrina: USD 87 billion).
”Large-scale climate conditions in the North Atlantic suggest elevated hurricane activity for 2021 and likely beyond. This increases the probability of a catastrophic landfall. Combined with the loss impact of secondary perils accelerated by climate change, insured catastrophe losses will only rise in the future,” said Martin Bertogg, Head of Cat Perils at Swiss Re.
Winter storms hit northern Europe in February, causing flooding, power outages and transport disruption, with more than USD 2 billion combined insured losses. In May, cyclone Amphan in the Bay of Bengal caused economic losses of USD 13 billion, the most destructive tropical cyclone India has ever experienced. Insured losses are expected to be just a fraction of the economic losses due to the region’s low insurance penetration.
These sigma catastrophe loss estimates are for property damage and exclude claims related to COVID-19. Loss estimates in this media release are preliminary and may be subject to change as not all loss-generating events have been fully assessed. COVID-19 has elongated the claims lifecycle, particularly for large events, and it will take considerably longer than normal to assess the final tally.
Swiss Re Institute will publish updated 2020 loss figures in a full sigma report in spring 2021.
The sigma explorer web app has been enriched further. Go to sigma-explorer.com to view, download and share natural catastrophe data projected onto world maps.
1Industry practice is to consider two types of event as secondary perils: (a) independent, high-frequency (ie, more frequent than primary peril events such as earthquakes and hurricanes), low-to-medium severity loss events (relative to losses resulting from primary perils); and (b) events that occur as secondary effects of primary perils (eg, a tsunami following an earthquake).
Global catastrophes caused USD 56 billion insured losses in 2019, estimates Swiss Re Institute
– Total economic losses from natural and man-made disasters in 2019 at around USD 140 billion vs USD 176 billion in 2018
– Global insured losses in 2019 estimated to be around USD 56 billion, below the previous 10-year annual average
– Natural catastrophes accounted for USD 133 billion economic losses in 2019, down from USD 166 billion a year earlier
– Disaster events claimed more than 11 000 victims in 2019
Total economic losses from natural and man-made catastrophes fell to around USD 140 billion in 2019 from USD 176 billion last year, according to preliminary sigma estimates from Swiss Re Institute. Global insured losses are estimated to be around USD 56 billion, down from USD 93 billion in 2018 and below the annual average (USD 75 billion) of the previous 10 years. Tropical cyclone activity in the second half of 2019 pushed overall insurance losses higher after a benign first-half of the year. And, as in recent years, a number of smaller and mid-sized loss-generating disaster events (so-called secondary perils) accounted for more than 50% of the insured losses. Globally, more than 11 000 people have died or gone missing in disaster events in 2019.
Natural catastrophes accounted for USD 133 billion of this year’s around USD 140 billion in global economic losses. The remaining USD 7 billion came from man-made disasters. Insured losses from natural catastrophes fell to USD 50 billion from USD 84 billion in 2018. Insured losses from man-made disasters declined to USD 6 billion from USD 9 billion.
Losses driven higher by tropical cyclones
Tropical cyclones inflicted devastation in different parts of the world. In the first half of the year, cyclones Idai and Kenneth in Mozambique and neighbouring countries, and Cyclone Fani in India, left trails of destruction and suffering to local communities. Sadly, the events claimed around 1 400 victims. Insured claims were very low given the low insurance penetration in the impacted regions.
In the second half of 2019, the Bahamas and North Carolina in the US were hit by Hurricane Dorian, which caused insured losses of about USD 4.5 billion. Japan was hit by two devastating typhoons within a short period. In mid-September, Typhoon Faxai hit the Kanto region that includes the Greater Tokyo Area, with associated insured losses estimated to be approximately USD 7 billion. Soon after, in early October Typhoon Hagibis struck the same region, causing further widespread damage across Japan. Total insured losses from Hagibis are estimated to be around USD 8 billion.
After some years of relative calm, the experience of the last two years reaffirms that typhoon risk remains a major vulnerability for Japan. Faxai and Hagibis followed Typhoon Jebi in 2018, which resulted in substantial insurance losses of close to USD 13 billion. This year’s typhoons further underscore the high exposure of urban regions in Japan to both typhoon wind and flood risks, in spite of the presence of mitigation infrastructure. While climate change cannot be ruled out as an amplifying risk factor, it is certain that the last three events confirm the historical pattern of devastating Japanese typhoons in the middle of the 20th century.
Secondary perils devastating as ever: climate change taking its toll
This year also saw heatwaves and dry spells, with new temperature highs recorded in several locations around the world, from Europe to Australia. Devastating wildfires affected Australia, Indonesia, the US, Canada, the Amazon region and Siberia, among others.
Once again, there were devastating floods in many regions in 2019. Severe monsoon rains led to extensive flooding in India, Bangladesh and Nepal, and there were repeated flood events in other regions, including China, the US, Europe, Canada and Australia. Thunderstorms and hailstorms have caused damage to property, vehicles and agriculture in many parts of the world. Together, secondary perils are estimated to comprise more than 50% of this year’s global insured losses from natural catastrophes, demonstrating once again the very significant impact these events can inflict on societies.
Climate change is leading to more frequent and more severe secondary peril events, which manifest in different ways: more local flooding, torrential rains, prolonged drought, severe wildfires and other extreme weather events. The Swiss Re Institute’s report Insurance in a world of climate extremes: what latest science tells us suggests a more differentiated picture on the impact of climate change on the insurance industry.
“There is more scientific evidence that climate change impacts the frequency and severity of secondary peril events today, warranting more focus for research. For primary perils like typhoons, science is far less conclusive”, says Martin Bertogg, Head Catastrophe Perils at the Swiss Re Institute. “In addition, macro risk factors like rapidly growing populations and property values in exposed areas contribute to the increase in losses resulting from natural catastrophes globally, making past experience a less definite predictor for future losses.”
The loss estimates in this media release are preliminary and may be subject to change, as not all loss-generating events have been fully assessed yet.
Total economic and insured losses in 2019 and 2018