Emerging Asia will be the region that will drive the insurance industry amid solid but slowing global economic growth over the next two years, according to research from Swiss Re.
According to a report by the Swiss Re Institute, titled ‘Global economic and insurance outlook 2020’, the still-positive economic momentum will support the insurance sector, with global premiums growing by more than 3% annually over the next two years in real terms, a one-percentage point increase from 2018.
Most of the demand will come from Asia, where premiums are expected to grow by around 9% – three times faster than the global average. Furthermore, innovation in insurance will expand the boundaries of insurability and further drive premium growth, the report said. It will also help improve global resilience by narrowing existing insurance protection gaps.
“The global economy has been performing well, and growth will remain solid,” said Jérôme Jean Haegeli, chief economist at Swiss Re. “However, the best is probably over. Cyclical momentum is positive but we expect real GDP to slow by about 1-2 percentage points in most parts of the world over the next two years. This also takes into account mounting structural challenges to growth, such as higher debt burdens, reduced savings on account of aging societies, and low productivity.”
The report identified an increase in downside risks to global growth, such as the record-low level of unemployment in the US that could likely lead to higher wage gains, as well as the higher risk of overheating in the medium term. In the long term, escalation of US-China trade tensions in to a global trade war poses a huge risk to economic growth. The report estimates that a worst-case scenario, such as a 10% tariff on all goods worldwide, would decrease global GDP by 1.5% to 2% in a three-year period.
As for the insurance sector, the current good economic growth environment is conducive to insurance premium development, Swiss Re said. It forecasts that global non-life and life premiums will both grow by around 3% annually over 2019/20, with gains driven by the emerging markets, many of which are in Asia.
“With the global economic power shift from west to east continuing unabated, China and emerging Asia in particular, will be the main source of insurance demand in the coming years,” Haegeli said. “Based on our models, we project that in US dollar terms, the growth rate of insurance premiums in emerging Asia will be more than three times that of the world average over the next two years.” According to its data, China’s share of global premiums increased from 0.8% in 2000 to 9.7% in 2017, and is predicted to reach 16% by 2028.
The report also addressed the issue of resilience, saying that the world economy remains mostly unprepared for a global recession, 10 years after the financial crisis. It said that the economy has less capacity to absorb shocks due to lower growth trends when compared to a decade ago, higher debt burdens, weaker financial market structures, and a trend leaning towards less openness.
It also highlighted the importance and potential of insurance as a pillar of resilience, and argued that a more supportive policy environment will allow insurers to expand their risk-absorbing capacity and long-term investment activities in resilience-building projects such as infrastructure.
“sigma estimates that the global re/insurance sector has total assets under management of about USD 30 trillion – roughly three times the size of China’s economy… This large asset base should be fully mobilised as risk absorber.”
In order to mobilize these funds, Swiss Re said that the industry and governments must harness innovation in insurance to narrow protection gaps. Developments such as parametric insurance are expanding the scope of insurability for natural catastrophe risks that have previously been difficult to insure, it said.
The report was published in Swiss Re’s flagship research publication sigma, which marks its 50th anniversary this year.