< News | 08.01.2020



Swiss Re’s group chief economist Jerome Haegeli tells Luke Holloway how insurers can remain resilient in an uncertain economic climate

The current state of the global economy is given a stark summary by Jerome Haegeli, group chief economist for Swiss Re.

“It is weak, fragile and uncertain,” says Mr Haegeli. “We see in our data that growth is already slowing down – half of Europe is stagnating or even in recession.”

Speaking to The Journal at Swiss Re’s launch of the Sigma Global Economic and Insurance Outlook 2020/21, Mr Haegeli warns that global economic growth will weaken in the next two years, but that the “engine” of global growth will be emerging markets in Asia and, in particular, China.

“In 2019, the US has seen fairly strong growth, however, austerity from the past; lower interest rates; changes in tax; and now the burden of the trade war; is all taking its toll on the US as well as other major economies.

“Risk number one is the trade war – the escalation of trade tensions between the US and China. It is not going away anytime soon and that is why the global economic outlook is soft, no question about that.

“On top of that, it is fewer than 10 years since the global economic crisis and since then, global debt has increased by $70trn (£53.1trn), negative yielding debt is now at $15trn (£11.5trn) and, despite huge fiscal expansion and massive monetary policy action, economic trade growth and productivity globally is low at about 2%. I would say that today, it is less resilient in terms of its capacity to absorb new shocks than it was 10 years ago.”

That is why, according to Mr Haegeli, it is important for the insurance sector – not just for shareholder benefit, but also for economic stability – to look for ways to further lower protection gaps.

“Swiss Re estimates the protection gap at $1.2trn (£911bn) globally, in premium-equivalent terms. That is a record high level and double the amount it was 10 years ago,” he explains.


So, what else can insurers do against a backdrop of an uncertain economic climate to make sure they remain resilient?

“Underwriting discipline. I almost don’t want to say it as it sounds so simplistic, but we need to keep up underwriting discipline,” says Mr Haegeli. “It is vital that insurers have a good understanding of investment risks on the asset management front. If you break down the profitability of an insurance company, almost 50% of all of investments are in the triple-B space, which means ‘be cautious’ – you must have good steering on investment strategy and asset location and be able to react swiftly.

“Also, insurance companies that can differentiate themselves and stand out from the crowd will succeed. Those that embrace technology, especially within underwriting, increase digitalisation and are early adopters of automation – that will differentiate you positively.”

Mr Haegeli stresses that insurance remains a hugely significant market that can continue to experience growth even in an economic environment that is softening.

“Growth maybe not in your typical, close neighbourhood, but further away, so having the ability to tap into new, different markets is going to be a huge factor,” says Mr Haegeli.

“China has made huge progress in the last 20 years, but if you also look at Taiwan and South Korea for example, there is a huge pent-up demand for insurance. If you look at most economies where there is growth, Asian economies are at the sweetspot.

“This supports analysis that even if you have a weak economic backdrop, if you tap into these markets it is great for these economies, great for the companies and for the sector overall.”

I think we are at an early stage of understanding the true effects of climate change and we as an industry must do more


With a clear increase in the claims costs of natural catastrophe (nat cat) events, how much of this is directly related to climate change and are trends changing irrevocably?

“Yes, climate change is happening,” explains Mr Haegeli. “The cost of nat cat events is also larger because you have more economic wealth being concentrated in areas that are more exposed to these events. Urbanisation has progressed rapidly in the last 20 years and economic output is also larger than 20 years ago, so all this means nat cat events are becoming more costly.

“I think we are at an early stage of understanding the true effects of climate change and we, as an industry, must do more. Climate change is a systemic risk. The UK has been at the forefront of climate change research globally, on the policymaking front, and we must thank them for that. Now, we must conduct further analysis and do more to incorporate these risks into our thinking and modelling.”

At the start of a new decade, Mr Haegeli feels that organisations like the CII will be more important than ever, especially at times of economic and political uncertainty both for firms and customers.

“It is really, really important to have institutes such as the CII. Times are more uncertain, so if you have strong institutions, standards and principles, it is something we can rely on and that helps our industry to operate.

“With so much information out there, things can become less transparent for customers, so you need strong professional bodies that can carry that weight and support the insurance market,” he adds.

And what are the main areas of focus for insurance in 2020 and beyond? “Three things: technology; climate change; and Asia, China and other emerging markets. These are the three defining characteristics of the insurance market landscape for the next 10 years,” Mr Haegeli predicts.

“The good news is, if the insurance profession can do a better job at narrowing protection gaps and getting access to risk pools, it is not just good for the shareholder, it is also good for economic stability. It will be good for wider society and it is an important responsibility for our profession,” he concludes.

Luke Holloway is editor of the CII


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