“Asia-Pacific will be the dominant driver of world insurance growth by 2020,” according to a study published by Munich Re’s Economic Research Department. The report forecasts that premium income for the insurance industry in the region “will double by 2020, with more than €1 trillion [$1.292 trillion], nearly half of the estimated additional global primary insurance premiums being generated in Asia-Pacific until 2020 (worldwide €2.2 trillion [$2.8424 trillion]).” The contribution from “emerging Asia” markets, such as China or India, will be nearly 70 percent (about €670 billion [$865.65 billion]).
The report said: “Five of the expected global top-ten primary-insurance growth markets will be in the Asia-Pacific region, both in property/casualty (P/C) and in life. Munich Re expects China to be the country with the highest increase of primary insurance premiums worldwide until 2020 (additional €425 billion [$550 billion]), followed by the United States (additional €350 billion [$452.2 billion]) and Japan (additional €157 billion [$203 billion]).”
The report notes that P/C primary insurance premiums “currently grow on average by 11 percent annually. This is twice as high as the second-placed region, Eastern Europe.” Michael Menhart, Chief Economist at Munich Re, said: “China, India and Indonesia will be the top-three growth countries in P/C, with average growth of above 12 percent over the forecast period (2012-2020) in China and India, and almost 10 percent in Indonesia.”
This means that Indonesia’s P/C primary insurance volume “will more than double in size from almost €3 billion [$3.876 billion] in 2012 to €7.3 billion [$9.432 billion] in 2020. Average growth rates of other emerging countries, such as Vietnam, the Philippines, Malaysia and Thailand, range between 6 percent and 8 percent.”
Munich Re said that “increasing risk awareness and a growing middle class” are the main factors driving growth in these areas. It explained that “rising consumer savings are fuelling demand for life and health insurance, changing regulations and greater consumer protection will increase demand for motor and liability insurance, while large infrastructure investments will boost the demand for industrial insurance.”
However, in spite of these “substantial premium growth expectations,” Munich Re said “emerging Asia will continue to be severely underinsured, especially against natural catastrophes.”
Long-term statistics from Munich Re’s GeoRisksResearch show how vulnerable Asia-Pacific is, especially regarding natural catastrophes. The data shows that since 1980, ”40 percent of all natural catastrophes worldwide took place in Asia-Pacific, 45 percent of all economic losses, but only 18 percent of all insured losses. By way of comparison, the share of insured losses in North America amounted to 64 percent. Also, over 50 percent of all fatalities from natural catastrophes occurred in Asia-Pacific.”
In addition Munich Re, which has been studying the effects of climate change for the last 20 years, pointed out that “weather-related catastrophes have tripled over the past 30 years in the region, and this trend is likely to continue. With an increase in population, higher value concentration in exposed areas and climate change, affecting the weather pattern, the loss potential is increasing. As insurance density is not expected to rise at the same pace, this will leave the region with a growing uninsured disaster-loss bill.”
Ludger Arnoldussen, Munich Re Board member responsible for Asia-Pacific explained: “Loss mitigation measures are cost-effective instruments for protecting communities on a sustainable basis. Analyzing and reducing risk – and offering adequate insurance against it – helps to considerably reduce the human and financial impact of natural disasters.”
He added: “Closing the existing gap of insurance coverage is a very powerful instrument in supporting long-term growth. At the same time, effective catastrophe-risk financing solutions need to be introduced by governments.”
The study defined long-term mitigation strategies as including decisions on where to build, improving building codes, or extending infrastructure such as dams. They also envision measures as to “where to increase incentives to prevent non – or under-insurance in the private and commercial sector.”
It’s also apparent that the “insurance industry needs to improve its risk assessment in the region, taking into account the fast development that creates new peak exposures and hot-spot locations, and can have an impact on worldwide supply chains,” Munich Re said; adding that it has “developed the RiskMapper to assist its clients in tracking and analyzing these exposures.”
In conclusion the sturdy noted that “triggered by the severe natural disasters that hit the region over the past three years, and by growing risk exposure in emerging Asia, some governments are already searching for more efficient disaster-risk management solutions.
“Instead of compensating disaster losses through emergency one-off disaster levies or tax financing, more forward-looking approaches that include risk reduction, prevention and insurance are possible alternatives.
“There is an increasing awareness that these disasters have to be addressed in a joint effort by stakeholders from the public and private sectors. Besides offering traditional reinsurance and insurance, Munich Re assists its partners in the region to develop disaster-risk insurance schemes that protect a country’s development achievements and sustain its future growth.”
Source: Munich Re