The global insurance industry will reach a new record in premiums by mid-2022, exceeding $7 trillion, according to a new forecast by Swiss Re Institute. The record is projected to come earlier than Swiss Re Institute predicted in mid-July, reflecting rising risk awareness, increasing demand for protection and rate hardening in non-life insurance commercial lines.
The industry outlook is also supported by a strong cyclical recovery from the COVID-19 pandemic, but economic growth is expected to slow in the next two years due to a growing crisis in energy prices, prolonged supply-side issues, and inflation risks, the study found. Long-term structural support for growth is needed, Swiss Re Institute said.
Among the trends shaping insurance markets are climate change and digitalization. Rapid decarbonization is becoming more and more important, and societies’ approach to transitioning to a green economy will determine their economic outlook, Swiss Re Institute said. The insurance industry can support that transition, both by absorbing disaster losses and by promoting sustainable infrastructure investments.
Adopting digital technologies is playing an important role in increasing global productivity growth, and the pandemic has increased customers’ receptiveness to interacting with insurers digitally, the study found.
Another significant trend is the growing divergence of countries’ growth and socioeconomic indicators like inequality – a potential downside risk, Swiss Re Institute said.
“The economic recovery we are experiencing is cyclical and not structural, with macroeconomic resilience weaker today than before the COVID-19 crisis. As such, we should be anything but complacent,” said Jerome Haegeli, Swiss Re group chief economist. “Given its capacity and expertise to absorb risks, the insurance industry is crucial in making societies and economies more resilient. Yet for inclusive and sustainable growth, everyone must be on board. Green growth is sustainable only if it is also inclusive. We have a unique opportunity to build a better market system. For this, all stakeholders will need to accept and internalize the costs of climate change, and policymakers to take into account the distributional effects of their economic policies across their populations. This will help to create the transition we need for a sustainable path to a net-zero economy by 2050.”
The study predicted that global GDP growth would be strong in 2021 at 5.6%, slowing to 4.1% in 2022 and 3% in 2023. Inflation is the main near-term macro risk, spurred by the energy crisis and prolonged supply-side issues, Swiss Re Institute said. The price pressure is expected to be greatest in emerging markets and in the UK and US.
Insurance industry resilience
Swiss Re Institute predicted that global non-life premiums will grow by 3.3% in 2021, 3.7% in 2022 and 3.3% in 2023. Property-catastrophe rates are predicted to improve in 2022 after a year of above-average losses. Casualty rates will likely also be stronger in 2022 due to ongoing social inflation, while personal lines could benefit from early signs of improving motor pricing in the US and Europe, the study found. Global health and medical insurance premiums are expected to rise, driven by the growth in the US economy and stable advanced market demand. Expansion in emerging markets is also expected to be strong, with China predicted to grow by 10% in each of the next two years, Swiss Re Institute said.
Global life premiums are projected to rise by 3.5% in 2021, 2.9% in 2022 and 2.7% in 2023. Protection-type products are expected to see strong demand, driven by higher risk awareness, a recovery in group business and increased digital interaction.
Rising risk awareness is spurring demand for more insurance protection, the study found. The pandemic shock has highlighted the role insurance plays as a risk absorber during times of crisis by providing financial relief to individuals, businesses and governments. However, supply-chain disruptions show that better protection is still needed, Swiss Re Institute said.
“Market conditions suggest that positive pricing momentum will continue across all lines and regions,” Haegeli said. “Inflation-driven higher claims development in all lines of business, continued social inflation in the US and persistently low interest rates will be the main factors for market hardening.”