Emerging Markets to Drive Global Insurance Growth over Next Decade: Swiss Re’s Sigma

March 8, 2019

Emerging markets will remain the growth engine of the global economy and insurance industry over the next decade, reflecting a continuing shift of economic power from west to east, according to Swiss Re Institute’s latest sigma report.

Discussing the macro-economic trends, the report noted that emerging market growth has moderated in recent years as economies mature and are more exposed to external cyclical factors. Nevertheless, projections still indicate that emerging economies together will account for 60 percent of global growth in 10 years’ time. “In this context, we expect quality rather than speed of growth to be a differentiating factor among the emerging markets themselves,” said the report,

The sigma report noted that the seven largest emerging markets will contribute up to 42 percent of global growth, with China on its own contributing 27 percent.

Economic growth also drives growth in the insurance sector, with the emerging markets’ share of global premiums forecast to increase by about 50 percent over the next 10 years, said the sigma report titled “Emerging markets: the silver lining amid a challenging outlook.”

“Our forecasts show that emerging Asia will lead the charge for premium growth, expanding by three times the world average over the next two years, and China becoming the biggest insurance market in 15 years,” sigma went on to say. Indeed, emerging market premiums are expected to outpace advanced market premium growth by four times during the next decade.

The report said that emerging markets’ growth is being driven by a group of industry-specific trends, including:

  • Regulatory evolution. Growth-enabling regulation helps increase insurance penetration in emerging markets and create a social safety net, said sigma, pointing to governmental policies that promote insurance take-up, help build financial resilience of households and develop certain industries. For example, compulsory motor third-party liability (MTPL) insurance can protect drivers against liability claims for death or injury to individuals. In addition, international solvency standards are being adopted at different speeds by different emerging nations. They are designed to protect consumers, maintain financial stability and build trust in insurance companies.
  • Improvements in market access. Trade barriers reduce competition in re/insurance markets, leading to less customer choice, poorer service, higher premiums and less capacity over the long-term, said sigma. Such protectionism “reduces the growth of affordable risk cover, preventing insurance markets from realizing their full potential and making it difficult to close protection gaps.” Some markets have seen an increasing number of protectionist measures that have reduced market access in recent years, such as limits on foreign ownership of insurance companies. However, insurance markets are generally more open today than they were 10 years ago, said sigma, citing the example of emerging Asian governments that have undertaken additional deregulation and liberalization measures while seeking to improve consumer protection.
  • Insurtech revolution. The use of technology in insurance can make products more affordable, business more profitable and provide access to new risk pools, said the report, noting, however, that the adoption of tech is not uniform across emerging markets. While China has become a major enabler of insurtech solutions, adoption has been slower elsewhere, sigma said, citing regulatory barriers that are preventing insurers from using tech solutions to transform their business models. “Flexible regulation, like the stance taken in China, can give insurers the opportunity to increase their involvement in technology companies. It is a crucial step when trying to cater to the rising influence of millennials – a consumer base that is not only tech savvy, but is also willing to share data.” The report indicated that other emerging markets could soon follow China’s lead.
  • Growing use of mobile devices. Mobile devices are becoming the most important point of interaction for customers with their insurance providers. “The expansion of the internet and mobile phones is enabling insurers to distribute, underwrite and pay claims online, which in turn helps expand the reach of insurance and close existing protection gaps.”
  • Urbanization and investment in infrastructure. Growing urban populations require substantial infrastructure investment to enable sustainable development. Globally, there is a need to invest US$69.4 trillion in infrastructure between 2017 and 2035, said sigma, quoting an October 2017 report from McKinsey Global Institute, titled “Bridging infrastructure gaps has the world made progress?” These infrastructure investments will provide substantial insurance opportunities, generating cumulative construction insurance premium volumes from emerging markets of US$44 billion (in 2017 constant dollars) for the period 2017-2035, said the report. (The report also cited expanding opportunities in personal lines and property catastrophe re/insurance as a result of infrastructure investments.)
  • Wider financial inclusion. “Improving access to insurance is particularly valuable for people with low incomes, who often struggle to manage unforeseen financial shocks,” the report said, emphasizing they are particularly vulnerable to shocks such as illness, incapacity to work, and the effects of natural catastrophes and extreme climate events, such as droughts. “For insurers, opening up a new risk pool of several billion customers on the cusp of transformative growth is an attractive proposition to embrace inclusive insurance of emerging consumers. It also helps close the protection gap for a large segment of the world’s population,” noted sigma.

Source: Swiss Re sigma

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