Emerging markets account for much of the growth expected over the next two years.
Munich Re’s newly released outlook for the insurance industry this year and next predicts solid growth globally, particularly in the emerging markets of Asia and Latin America. Better economic prospects in the U.S. further bolster the forecast, and Munich Re expects those gains to overcome China’s stagnant market.
Globally, Munich Re anticipates a growth rate of 4.5% annually, which factors out to 3% in inflation-adjusted terms for 2017 and 2018. Premium income increases for this year project to be only slightly higher than last year, but will outpace the 2% average growth rate of the past 10 years. For 2018, premium income is on track to register 3% real growth. Propelling these gains are Munich Re’s forecast of real worldwide economic expansion of 2.9% this year and 3.1% in 2018.
Michael Menhart, Chief Economist at Munich Re, noted that Brazil, Russia, and many emerging markets are experiencing a “significant recovery,” which in turn has heightened demand for property and casualty insurance. Meanwhile, industrialized markets, such as the U.S., Japan, and the Eurozone, will also see increased demand due to stable economies. However, low interest rates in those regions will dampen the life insurance market. Since those same trends aren’t seen in emerging markets, life insurance stands to make gains outside of the industrialized world, Menhart continues. “Growth prospects for insurers are therefore looking a little brighter worldwide.”
Outlook for P&C, Life Insurance
While demand for P&C insurance in the emerging markets of Asia, the Middle East and North Africa is on the rise, those gains will be offset by less robust growth in the established industrialized markets of Europe and North Africa. This led Munich Re to forecast a “somewhat weaker” 4% jump in P&C premium volume (2.5% in real terms) for 2017 and 2018 — a half percentage point below global economic growth.
The firm attributes this muted outlook to insurers being forced to develop up-to-date products and risk models in response to new threats, such as cyber attacks, and having to modernize IT systems. But as insurance companies swiftly react to those challenges, insurers will see more business opportunities open up.
On the life insurance front, emerging markets in Asia (except for China) and Latin America have the potential to push average premium income up 4.5% (3% in real terms), slightly higher than economic growth. Although China is expected to experience a slump following a tremendous escalation in premium volume last year, emerging markets in Asia will nevertheless account for a 10% premium volume increase in that region. Meanwhile, life insurance premiums in Latin America are projected to improve by 8.5% (more than 6.5% in real terms) this year and next. Gains in those emerging markets will offset moderate growth in industrialized countries where continued low interest rates have plunged premium volumes below the level of economic growth.
Emerging Markets Drive Growth, But Challenges Remain
Throughout its forecast, Munich Re points to emerging markets as the main drivers of insurance industry growth worldwide, with market share in those regions projected to climb to 47% by 2025 from 20% in 2016. Improved living standards and an increased need for insurance underpin growth in those markets. But even industrialized regions might see an upswing due to rising interest rates and demographic trends.
As the insurance industry grows globally, it confronts new challenges that call for fresh solutions. In its outlook, A.M.Best also predicts 2017 will be a good year for the insurance and reinsurance industries. At the same time, the industry has become increasingly interconnected globally; consequently, a catastrophic event — even one that happens in cyberspace — in one geographic area reverberates across the globe. Insurers, A.M. Best advises, must implement advanced risk management systems to deal with those risks.
Advanced technologies that enable self-driving cars also necessitate an entirely new risk assessment model. Auto insurers have witnessed a surge in claims, so any technology promising safer vehicles is welcome. But those same high-tech systems present another complication for insurers: How to underwrite car insurance when the car isn’t operated by a human but by sensors and GPS?
But with the insurance industry’s worldwide growth on the upswing, new challenges will be a lot easier to handle. Premium growth provides insurers with the tools necessary to devise innovative products for an ever-evolving global marketplace.