In Asia Pacific (APAC), insurance resilience has improved in both the advanced and emerging economies of the region, according to the new Macroeconomic Resilience Indices jointly developed by Swiss Re Institute and the London School of Economics.

In relative terms, the composite insurance resilience index improved in both advanced and emerging countries in APAC.

Insurance resilience (protection needed versus that available) is assessed for three main risks: for three core risk areas – natural catastrophes, mortality and healthcare spending.

Oceania

The largest improvement in insurance resilience was in Oceania, where the index increased by 18 percentage points since the turn of the century to 77%, making the region the most resilient geographic area by far. Oceania also has the highest resilience score for natural catastrophe risks of any region in the world at 69%. This reflects compulsory earthquake covers in New Zealand and success in efforts to increase uptake of flood insurance in Australia.

Advanced APAC

In the rest of advanced APAC, the composite insurance resilience index was up by four percentage points to 59%, while for emerging economies in the region it rose by seven percentage points to 31%.

Advanced APAC countries have the highest insurance resilience score for mortality risks of any region globally at 62%. Taiwan, Hong Kong, South Korea and Japan are among the economies with the highest life insurance penetration in the world, driven by savings-type products.

Emerging APAC

In emerging APAC countries, insurance protection against the main three risks continues to be at significantly lower levels compared with advanced-economy counterparts. One notable development in emerging APAC is the strong gain in resilience against healthcare spending risk, reflecting the major universal health coverage-inspired reforms that have been implemented in China, India, Indonesia, Philippines, Thailand and Vietnam.

Emerging economies in APAC have the largest absolute insurance protection gap of $456bn, representing almost 80% of the region's total of $572bn.

Global

Overall, the global economy now has less capacity to absorb a shock than it did in 2007, at the onset of the global financial crisis. A record-high $1.2tn protection gap for the three risk areas presents huge opportunity for insurers to boost resilience.

Jerome Jean Haegeli, group chief economist at Swiss Re, said, "The insurance industry has largely kept pace with growing loss potentials and can do more to improve resilience. Emerging markets, in particular, benefit more strongly from insurance protection than mature economies, which often have greater access to alternative sources of funding."

The new macroeconomic resilience indices use data from 2007 to 2018 for 31 countries, representing about 75% of the world GDP. They are composed of a broad spectrum of variables to provide a more holistic assessment of economic health than GDP alone. The analysis shows that 80% of the sample countries had lower resilience scores in 2018 than in 2007. The main drivers of this trend have been exhaustion of monetary policy options in many developed economies and a challenging operating environment for the banking sector, even as financial institutions are stronger since the crisis.

According to the analysis, Switzerland and Canada have consistently been among the top three most resilient countries over the past decade. The US has shown a steady improvement from a low point in 2010. Last year, it ranked third, given strong economic fundamentals, efficient labour and deep capital markets, as well as fiscal leeway to mitigate an economic shock.