Persistent wage inequality has made households vulnerable in the current cost-of-living crisis due to a drop in protection activity, Swiss Re says in a new report.
The reinsurance giant said in its Remodeling the social contract: the role insurance in reducing income inequality that decades of growing inequality in advanced markets had cost insurance protection $252 billion. He went on to say that income inequality is a threat to the stability of our economies and societies, citing global unrest linked to Russia’s invasion of Ukraine.
In a statement, Swiss Re wrote: “Income inequality is not just a problem for developing countries. While many emerging economies have narrowed the gap between rich and poor in recent years, income inequality has increased in advanced economies over the past four decades. [Our] Rising income inequality in advanced economies led to approximately $252 billion lost in insurance protection in 2019 alone, study finds, making households more vulnerable to catastrophic losses from disasters unforeseen events.
According to Swiss Re, income inequality in advanced economies has been increasing globally for 40 years, associated with a decline in life expectancy in some countries: in the United States, the gap in life expectancy between the 1% richest and the poorest 1% increased to 10-15 years. In the United States, as the most unequal advanced economy in the world, the middle class has fallen from almost 60% of the population in the 1980s to less than 55% in 2018. In contrast, in emerging economies like Brazil and China, the middle class has grown at the fastest rate ever.
The Swiss Re Institute found that total insurance protection in advanced economies would have been around $252 billion higher in 2019 if inequality had remained at 1990 levels. This translates to around $39 billion in protection lost insurance in the form of paid claims for property and casualty losses and approximately $213 billion in life insurance benefits.
This inequality, the reinsurer said, could be effectively mitigated by insurance that could provide financial relief to households affected by shocks.
Jerome Haegeli, Group Chief Economist at Swiss Re: “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 be pushed into poverty in the event of a major disaster.
He added: “By shifting financial risk from individuals and increasing their resilience, the public and private sectors can help reduce inequality. Digitalization also plays a key role in tackling underinsurance, as innovation can make insurance more accessible and affordable for more people. »
The report says not only is insurance a powerful tool to promote economic growth and reduce inequality, but it should be a priority for both the public and private sectors.
The authors write: “Tackling inequality can strengthen the social contract and bolster public trust in institutions. In the short term, governments need to consider suitable policies to alleviate the current cost of living crisis that many households are facing. In the long term, it is up to the public and private sectors to take action to tackle inequality. Governments should put in place a combination of policies that more equitably distributes economic opportunities and outcomes. Policy makers should also use risk transfer mechanisms to spread income risks more equitably, such as social security systems, transfers to improve poorhigh-income risk protection or public-private partnerships (PPPs) to extend insurability. Private insurance has a role to play in stimulating innovation to reach the least protected communities. In today’s high inflation environment, product design and policy support that promote affordability of insurance coverage is of particular importance. »