News Coronavirus watch09 Jun 2021

COVID-19:Swiss Re says govt support keeps alive unviable zombie companies

| 09 Jun 2021

Threats that will shape the future post-COVID-19 risk landscape range from the unintended consequences of government interventions through to the dangers of restarting under-maintained industrial facilities, according to Swiss Re's "SONAR 2021: New Emerging Risks Insights" report.

Swiss Re's group chief risk officer Patrick Raaflaub said, "When COVID-19 emerged in late 2019, few could have predicted the magnitude of its impact. Many of the actions taken to mitigate the pandemic have themselves created new risks, from the widening inequality gap to the dangers of restarting under-maintained industrial operations. As re/insurers, it is essential that we have the best possible understanding of these emerging risks. It is also important to remain vigilant on the emerging risks that are already known – especially regarding climate change – as these will impact us for years to come."

The emerging risks include:

1.Zombie companies

As COVID-19 swept across the globe, many governments enacted financial relief programmes to prevent corporate bankruptcies. In the US company bankruptcies were down by 5% year on year in 2020, a reversal of the trend of increasing rates from 2017 to 2019. Government stimulus programmes helped many viable companies stay afloat. However, stimulus measures have also propped up non-viable firms: so-called “zombie companies".

Swiss Re warns that zombie companies are a potential burden for the financial sector, especially when it comes to increased credit default rates. Low interest rates are incentivising companies to take up bank credit, creating a risk of large-scale defaults on these loans once government support dries up and zombie companies become insolvent.

Rising premiums

Related to this, Mr Jerome Haegeli, Swiss Re's group chief economist told Reuters that the expectation that hundreds of so-called zombie companies will fail over the next few years and drag on the economy is prompting insurers to reduce risk and charge higher premiums, a trend likely to continue as failures increase.

To avoid a potential surge of defaults and bankruptcies, governments will need to carefully decide how and when to withdraw stimulus packages.

2.Income gap widens

COVID-19 lockdowns have widened the gap between rich and poor. While many white-collar workers were able to move to home offices and continue their work, lower-wage face-to-face service sectors such as retail, gastronomy and tourism experienced high unemployment. In the US, for example, leisure and hospitality unemployment rose from 5% at the start of 2020 to 40% in April 2020.

COVID ousts more than 30m people from India's middle class

The income inequality gap is not only an issue for developed economies. According to Pew research, the growth of the global middle classes was 54m people fewer than projected in 2020, with 60% (or around 32m) of that reduction in India alone.

In countries where government finances allowed for aid packages, lower-income households fared better. In the US, stimulus measures increased the incomes of low-wage workers during the first few months of the pandemic. Of particular concern is the disproportionate impact on younger generations already struggling with pressured labour markets and lack of career opportunities.

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.

3.Urban mobility 

The report also says that rapid decarbonisation of the global value chain is essential to avoid the most extreme effects of global warming and climate change. One important target area for decarbonisation is transportation, which currently contributes about 24% of global CO emissions from fuel combustion.

The move to electromobility, hydrogen fuel cells and non-fossil-based fuel alternatives is well underway and promises a sustainable response to traffic-loaded urban centres. For example, there are already sophisticated micro-mobility systems such as rentable e-scooters in many cities. In the future, the options are open to the development of self-driving delivery vehicles, or even urban air mobility options such as clean-powered flying taxis.

The benefits of the revolution in clean transport are clear. However, there are emerging risks. 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.

4.Diversity gaps in product testing and other technology risks

Besides COVID-19-related emerging risks, Swiss Re's SONAR also examined new technological risks in the global marketplace. For example, the report examined the importance of accounting for gender, age and other factors in product testing. Evidence suggests that crash test dummies and medical trials may need to more accurately reflect a changing demographic in order to increase car and medical safety.


Swiss Re's SONAR programme stands for Systematic Observation of Notions Associated with Risk. It is Swiss Re’s process for identifying, assessing and managing emerging risks. Experts across the company collect early signals of emerging risks, which are assessed and prioritised by an emerging risk management team. SONAR findings have been published for external audiences since 2013.


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