Global insurance premium volumes reached a new benchmark high of US$5 trillion in 2018, according to the Swiss Re Institute’s report, World Insurance: The Great Pivot East Continues, but that doesn’t mean all is well for insurance sectors in every part of the world.
China and Asia-Pacific more broadly will continue to dominate when it comes to global economic growth as well as insurance demand, predicted the report, though the US and Canada, alongside well-developed economies in Asia-Pacific will come out on top in non-life premium growth.
“The profitability of the non-life sector has been challenged for 2017 and 2018 with CAT losses, and then separately [with certain lines such as] motor, particularly in the commercial sector. As a result of this, we now see rate increases, particularly on the commercial side,” said Thomas Holzheu, chief economist for the Americas at Swiss Re. “Around 2015, we saw an increase in frequency and severity for motor [claims], both in personal and commercial. [Now,] we see denser traffic on the roads, and we see distracted driving taking hold as an issue and driving up frequency,” which is an especially pressing issue for large commercial accounts when juries award high sums following collisions.
He added: “As a result, the industry has taken action in terms of rate increases. On the personal lines side, [this had been] going on for a few years already, and things have become more competitive lately, but on the commercial side, we see very strong rate increases and that’s unabated at this point.”
The economic backdrop, meanwhile, is one of low interest rates, which will keep putting profitability under pressure. In fact, profitability in the non-life sector will remain a challenge, according to the Swiss Re report, even though there has been an improvement in underwriting conditions.
Looking eastwards, the share of global premiums is shifting to Asia-Pacific, a region that will account for 42% of global insurance premiums by 2029.
“It’s two fundamental forces [driving this], and one is the growth of the economies in Asia, centring around the two big economies in China and India, which will continue to grow at a faster pace than Europe, the US, or Japan and Australia,” explained Holzheu.
China is the big engine driving that shift, and as we see population and economic growth in the country, the resulting urbanisation and development leads to a growing middle class that accumulates insurable assets, including motorcycles, cars, and apartments, as well as more demand for life and health insurance.
“We see a very strong increase in [insurance] demand in these emerging economies, when they lift a large part of the population into the middle class, and the demand for insurance actually grows at a multiple of economic growth,” said Holzheu.
However, offsetting the increase in insurance demand are macroeconomic factors that involve many political risks. The US-China trade war is one, and it has gone beyond impacting the two countries involved, extending its effects to Europe and other regions, which in turns creates adverse conditions for the insurance industry. An elevated risk of a US recession is also putting a damper on future forecasts.
“That would massively affect the appetite for US insurers, but would also reduce demand for insurance, particularly on the commercial side, and cause great risks, which are relevant for the balance sheet of insurance companies, as they are strongly invested in credit and in fixed income,” said the Swiss Re expert.