Swiss Re says global insurance premium growth accelerates, but gaps likely still widening

Global reinsurance company Swiss Re has increased its forecasts for global insurance premium growth, seeing an acceleration and now forecasting the market will surpass $7 trillion in global premiums by mid-2022.

Previously, just a few months ago, Swiss Re had forecast global insurance premiums would reach $7.2 trillion by the end of 2022, with a 2.9% growth rate for the year.

But now that growth rate forecast has been raised to 3.3% for 2022, leading Swiss Re to conclude that the $7 trillion mark will be surpassed by mid-next year.

So does that mean shrinking protection gaps, as insurance and reinsurance premiums cover more of the risk?

Unlikely, we feel, as risk is value-at-risk expanding at the same time and it seems likely the global protection gap will continue growing while insurance premium growth is running at such low percentage rates.

Swiss Re’s new forecast is for global insurance premiums to grow by 3.4% in 2021, 3.3% in 2022 and 3.1% in 2023.

The slowing rate of growth is indicative of an industry that likely isn’t keeping pace with global exposure and value-at-risk growth, meaning protection gaps will continue to expand, it seems.

But Swiss Re sees positive signs, believing that buyers of insurance are increasingly risk averse.

“Rising risk awareness is generating demand for more insurance protection,” the reinsurer explained. “The pandemic shock has highlighted the important role the insurance industry plays as a risk absorber in times of crisis by providing financial relief to households, businesses and governments. At the same time, supply chain disruptions show that better protection is required to improve societal resilience and record-breaking weather extremes this year add urgency to the global race to net zero. Consumers also welcome digital and online insurance, and it is expected to grow rapidly. However, increasing inequality could exacerbate social inflation, which is defined as the increase in insurance claims driven by large litigation costs.”

You’ve also got to factor in the effect of higher rates on premium growth, of course and this has always been a key driver.

Rate hardening is forecast by Swiss Re, especially in catastrophe exposed lines of business.

“Market conditions suggest that positive pricing momentum will continue across all lines and regions. 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,” explained Jerome Haegeli, Swiss Re Group Chief Economist.

Non-life insurance premiums are forecast to grow by 3.3% in 2021, 3.7% in 2022 and 3.3% in 2023, so slightly faster than the average and this is likely largely a function of price.

You really need to compare the rate of insurance premium growth with both inflation and exposure growth (value-at-risk) to identify whether the world is actually becoming better protected by insurance and reinsurance capital, or whether more risk is uncovered as economies expand, with many modernising, constructing and building infrastructure at pace.

On top of physical value-at-risk though, there is also intangible and here insurance and reinsurance is really not keeping pace. The exposure from intangible risks, including contingent risks and interruptions, is expanding at great pace, while digital and cyber risk exposure is growing far faster than insurance premium growth, meaning more risk is uncovered and uninsured exposure rising.

So while it’s extremely positive that insurance premium growth seems to be accelerating, alongside the world’s recovery from the peak of the COVID-19 pandemic, there is a significant amount of work to do for the insurance and reinsurance industry to keep pace with exposures that are rising rapidly around the globe.

Swiss Re’s last report on the protection gap highlighted a global record of $1.4 trillion.