Social inequalities. Modern slavery. Zombie companies. Revolution in transportation. Unknown effects on health.
These are some of the societal phenomena that insurers should view as emerging risks at the dawn of the post-COVID-19 recovery, Swiss Re in its report SONAR 2021: New Emerging Risks Insights.
The wealth gap between rich and poor is a major concern. Swiss Re notes that the growth of the middle class slowed in 2020 as poverty rose to new heights. “Lockdown measures most heavily affect person-to-person services in low-wage sectors (gastronomy, barbers etc.). White collar workers able to work from home are less impacted,” the reinsurer points out.
This has had an impact on the middle class, which fell 54 million people short of predictions in 2020. Countries that offered financial stimulus measures in response to the pandemic fared better than others, Swiss Re notes. The pandemic also had a disproportionate impact on the younger generations, the reinsurer adds.
“The reduction in income for many sections of the global community threatens the recent growth in insurance demand seen in many markets. It also places the emphasis on the development of affordable private insurance solutions to fill the protection gap for middle and lower-income segments,” the SONAR 2021 report says.
Zombie companies and modern slavery
The post-pandemic recovery is ushering in another danger, Swiss Re continues, that of the withdrawal of government financial support to sustain companies. “Credit subsidies have protected companies from COVID-19 related insolvency – that is both companies with a viable business model but also non-viable firms,” the SONAR 2021 report reads.
Swiss Re believes that zombie companies represent a potential burden to the financial sector, particularly in terms of increasing credit default rates. For example, low interest rates encourage companies to take out bank loans, creating a risk of large-scale defaults on those loans once government support dries up and zombie companies become insolvent.
“To avoid a potential surge of defaults and bankruptcies, governments will need to carefully decide how and when to withdraw stimulus packages. A recent Swiss Re Institute paper concluded that for sustainable economic recovery, policy should support businesses that are viable in the long run and facilitate the orderly restructuring of non-viable firms.
Swiss Re also addresses the phenomenon of modern slavery. “Companies face increasing pressure to ensure they are not party to any form of people exploitation, including at the supply chain input/service providers level. Newly introduced laws and regulation could potentially increase litigation risks associated with modern slavery,” the report adds.
What impact will this have on insurers? “Identification of exploitation could lead to large liability claims, in particular with respect to director & officer (D&O) covers,” Swiss Re cautions.
Transportation revolution
On a more positive note, electric vehicles and other decarbonized means of transport can reduce greenhouse gas emissions from fuel combustion by 24 per cent. Yet this revolution poses risks for insurers, Swiss Re warns.
“City planners face the challenge of creating ways for new e-vehicles to safely coexist with traditional transport and infrastructure. Injuries from e-scooters and e-bikes are a potential source of new liability claims. Further, the rental model of many of these new forms of urban transport requires sharing of personal information, giving rise to risks around possible data theft. Legislation and regulation will therefore also need to be updated in order to mitigate these risks,” the report notes.
Unknown health effects
The pandemic is fraught with unknowns related to its effects on human health. The priority has been to fight the coronavirus, but what will the cost be of neglecting the treatment of other diseases?
During the pandemic, across countries routine screenings, planned surgeries and treatments have often been postponed in order to prevent health services from collapsing. As a result, many patients have not received the care they need at the right point in time. This could lead to a decline in overall health status,” the reinsurer notes.
In addition, surveys show increases in the incidence of mental health disorders such as anxiety and depression during the pandemic. This is in addition to less healthy lifestyles, which include decreased physical activity and increased alcohol and/or drug consumption.
“Long-term effects such as reduced life expectancy, particularly for at-risk population groups, is a very real possibility. Such effects may correspond with economic and social status, and has implications for insurance demand,” reads the SONAR 2021 report.
