Emerging markets key to insurance growth over next decade: Munich Re

Emerging markets are expected to be the next source of insurance premium growth through the next decade, with the majority of increased penetration occurring in Asian countries, according to reinsurance giant Munich Re.

Germany domiciled reinsurer Munich Re feels that the outlook for the global insurance industry has improved over the last 12 months, despite certain, difficult economic situations.

As a result, overall, the firm expects global insurance premium growth to exceed economic growth over the next ten years, with the majority of this growth coming from emerging markets, such as Asia.

“The outlook for the insurance sector for the next two years has brightened, despite weaker economic development in some regions. In the medium term, many emerging markets will continue to drive growth in the insurance sector, not only in terms of growth rates but also in terms of absolute growth,” said Michael Menhart, Munich Re’s Chief Economist.

The reinsurer underlines disparity in the potential for insurance market growth across emerging economies, as high demand for insurance in Asia continues to support the potential for rapid growth, while challenging economic conditions in Latin America, for example, is likely to hinder insurance premium expansion.

In fact, the reinsurer predicts that by the year 2025 more than 25% of global insurance premium growth will come from emerging markets, with a significant portion of this coming from emerging Asian markets.

Differing economic challenges, conditions, and outlooks notes Munich Re, also suggests that certain economies will likely experience greater growth in property and casualty (P&C) premiums when compared to life premiums, and vice-versa.

However, underlining the expected dominance of growth from emerging Asian markets over the next decade, the region tops the list for both expected P&C, and life insurance growth over the next decade.

Emerging Asia is expected to experience a compound annual growth rate (CAGR) of 9.1% from 2016 to 2025 in P&C premium growth, followed by the Middle East and North Africa (MENA) at 5.5%.

In contrast, Western Europe and North America are expected to experience the least P&C market growth during the ten-year period, at 1.6% and 1.5% respectively.

A reduced growth outlook is expected in more mature markets such as the U.S. and parts of Europe owing to greater education and understanding of products, a higher income, and more advanced modelling capabilities that enable more affordable and adequate protection.

But as the figures highlight, the rising asset values and expanding middle class in certain emerging Asian countries means that growth here is expected to be substantial in the coming years, which presents an opportunity for insurers, reinsurers, and insurance-linked securities (ILS) players to innovate and provide beneficial solutions.

For the life insurance sector emerging Asian markets again top the list, with an expected CAGR of 10.2% from 2016 to 2025. This is followed by Latin America at 7.2%, despite continued economic turmoil in Brazil and Venezuela, says Munich Re.

“By contrast, in industrialised countries, the low-interest-rate environment will remain the major challenge for some time to come, especially for life insurance business,” said Menhart.

Overall, Munich Re predicts that China will experience the highest growth in premium volume up to 2025, moving it from third in the global ranking of primary insurance markets by premium volume, to second, behind the U.S.

This would be a substantial shift from 2005, which, according to data from the reinsurer was a year that saw China sit 10th on the list of global ranking primary insurance markets by premium volume.

For insurers, reinsurers, and expanding ILS sector the changing risk landscape presents both a challenge and vast opportunity.

As more and more people become aware of insurance solutions that protect against a range of perils, including natural catastrophes, which Asian markets are highly vulnerable too, it’s likely demand for re/insurance solutions will grow also.

The opportunity and potential for increased penetration that will ultimately help to reduce the global protection gap (difference between economic and insured losses post-event) is huge, so it’s likely that the structures, capacity and skills of insurers, reinsurers, ILS players, and governments will be required to support the growth potential.

Furthermore, modelling capabilities are improving all the time, and the realisation that the risk landscape is shifting is driving a need for greater assessment and risk analysis/prediction tools in emerging regions, a trend that will also support increased penetration in emerging regions.

“Overall, global premium growth in the next ten years will be slightly above economic growth. Whilst, at 2.9% in real terms on average, growth in property-casualty premiums will be about the same as that in global GDP, we expect premiums in life insurance to grow by more than 3% p.a. – essentially driven by the emerging countries in Asia,” concludes Munich Re.