11th May 2022

Decades of rising inequality in advanced markets take $252bn toll on insurance protection crisis-Swiss Re Institute
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Swiss Re Institute's latest sigma report, "Reshaping the social contract: the role of insurance in reducing income inequality", examines the rise and consequence of income inequality across the globe.
This research comes at a time when income inequality is a threat to the stability of our economies and societies. The war in Ukraine has intensified the global cost of living crisis by pushing up food and energy prices when inflation is already high. This means that those who spend a higher percentage of their earnings on food or fuel, especially low-income households in emerging markets, are at risk of poverty and ill health. Food insecurity is one important symptom of inequality and can undermine the social contract.
Income inequality is not just an issue for developing countries. While many emerging economies have been closing the gap between rich and poor in recent years, income inequality has been rising across advanced economies over the past four decades. Swiss Re's study finds that the rise in income inequality in advanced economies has resulted in about $252bn of foregone insurance protection in the year 2019 alone, making households more vulnerable to catastrophic losses from unforeseen events.
Guido Fürer, Group chief investment officer of Swiss Re, comments "There is a growing opportunity for private capital to make a positive impact on inequality. Until now, the "S" in ESG, which refers to social aspects such as diversity, inclusion and equality, has been an underrepresented investment theme. I notice that this is now changing rapidly as the investment community is placing more emphasis on the "S", supported by a growing investible pool. As a risk taker and investor, the insurance industry is in a key position to drive the profound changes needed to improve resilience."
Jerome Haegeli, Group chief economist of Swiss Re, said "Insurance is a powerful tool to promote economic growth, improve resilience and reduce inequality by providing financial protection. Insurance protection is particularly important for the most vulnerable because, without insurance, low-and even middle-income families can fall into poverty in the event of a severe disaster. By shifting financial risks away from individuals and increasing their resilience, the public and private sectors can work towards reducing inequality. Digitisation also plays a key role in addressing underinsurance as innovation can make insurance more accessible and more affordable for more people."
Main insights of the sigma study are:
-Income inequality in advanced economies has been rising overall for 40 years, associated with declining life expectancy outcomes in some countries: in the US, the gap in life expectancy between the wealthiest and the poorest 1% has grown to 10-15 years. In the US, as the world's most unequal advanced economy, the middle class has shrunk from almost 60% of the population in the 1980s to less than 55% in 2018. In contrast, in emerging economies such as Brazil and China, the middle class has grown at the fastest rate ever seen.
-Swiss Re Institute finds that total insurance protection in advanced economies would have been about $252bn higher in 2019 if inequality had remained at 1990 levels. This translates to about $39bn of foregone insurance protection in the form of claims paid for property & casualty losses and about $213bn in life benefits.
-Economic shocks typically hit low-income households hardest, threatening to exacerbate inequality for the world's most vulnerable people. Countries with higher income inequality and lower levels of economic resilience are at greater risk of food insecurity because a larger share of household income is spent on food. The Ukraine war could worsen inequality in countries worldwide by making low-income households more vulnerable to poverty and ill health due to high food and energy costs.
-Insurance is effective in mitigating inequality by providing financial relief to households hit by shocks. In the current high-inflation environment, product design and policy support that promote insurance affordability are particularly important. With new technologies, insurers can use a wide range of distribution channels to expand access to insurance coverage. For example, microinsurance can help reduce inequality and promote inclusive growth by providing affordable and efficient insurance products to underserved low-income households.
-The public and private sectors must work together to address inequality and strengthen the social contract. In the short term, governments need to consider tailored actions to alleviate the current cost-of-living crisis many people are facing. In the long term, governments can develop a policy mix that distributes economic opportunities and outcomes more equally and ensures that income risks are shared equitably. They can draw on public and private risk transfer mechanisms, such as social insurance schemes, or public-private partnerships to expand insurability.

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