Economies of all nations have fought back strongly against the recession and slowdown that wreaked havoc on the entire world. Asian countries have emerged particularly victorious in the battle, with their growth rates well above the predicted ones. Now, a recent survey has pointed out the role of insurance in economic development, especially in developing Asian nations.
According to the Swiss Re Institute, the global insurance industry is projected to see moderate growth in the next two years, despite a slowdown in the economy. They estimate a 1.1% increase in insurance premiums in 2023, followed by a 1.7% increase in 2024. Significant insurance growth is anticipated in emerging Asian markets such as India, Thailand, Indonesia, and Malaysia. These regions are expected to experience substantial expansion in the insurance sector in the coming years.
According to the latest sigma report by the institute, emerging Asia is expected to become the primary driver of global economic growth in the coming years. With China’s economy reopening and experiencing a recovery in demand, the survey predicts that emerging Asia will achieve a growth rate of 5.4% in 2023 and 2024, surpassing the average growth of the past two decades. However, Swiss Re highlights that the impact of China’s recovery on the global economy will be limited. While China’s growth is significant, its effects on other economies might not be as pronounced.
Despite concerns about inflation, the global insurance industry is projected to remain resilient. Swiss Re states that persistent inflation pressures will lead to continued hard market conditions in non-life insurance, as insurers compensate for increased claims costs by raising premium prices. As disinflation takes hold and prices decrease, insurers can expect less expensive claims and higher returns from interest rate-sensitive investments, which will further support profitability in the industry.
Several factors are expected to contribute to the profitability of the insurance sector. These include the hardening of rates in property and casualty insurance, improved combined ratios (a measure of underwriting profitability), and stronger investment returns due to higher interest rates. Additionally, insurance companies are expected to adjust premium prices to compensate for rising claims costs, further supporting profitability.
The report also highlights the dominance of the United States as the largest insurance market globally. In 2022, the US recorded total premiums close to $3 trillion. China follows as the second-largest market, with premiums reaching $698 billion, while the United Kingdom has surpassed Japan to secure the third spot.
Jérôme Haegeli, Swiss Re’s Group Chief Economist, affirms these projections and suggests that the insurance industry will adapt to the current economic conditions and continue to thrive, due to role of insurance in economic development.
Trends in Various Insurance Sectors
1. The non-life insurance industry is set to benefit from improved pricing, with a projected growth rate of 1.4% for the current year. Primary factor influencing growth will be the implementation of stricter market conditions in both commercial and personal insurance categories. Insurers will be increasing premium rates to counter the escalating costs of claims resulting from inflation.
2. In the life insurance sector, global premiums are forecasted to rise by 1.5% in 2024, surpassing the 10-year trend of 1.3%. Emerging Asia, particularly India, is expected to witness favorable growth and profitability, with a projected real growth rate of 5.0% for life insurance premiums in 2023. The global savings products premiums are expected to grow, driven by a 4.3% increase in emerging markets.
Life insurance companies are experiencing favorable conditions for growth and profitability due to increasing wages and interest rates in advanced markets. This has led to a higher demand for annuities and pension risk transfer products. The report also highlights a significant real growth forecast of 7.3% for life insurance premiums in Hong Kong following the opening of borders with China.
While the profit outlook for life insurers is positive, there are potential risks such as credit downgrades and lapses due to the low growth and high inflation environment. However, improved investment returns, normalization of COVID-19 related claims, de-risking of pension and annuity premiums, and the implementation of the IFRS 17 accounting framework are expected to stabilize earnings volatilities.
3. Motor insurance, the second largest non-life line of business, accounting for 21% of premiums, is projected to experience a significant rebound with an estimated real-term growth of 2.8% in global premiums in 2023. This insurance growth is primarily driven by increasing premium prices, following three consecutive years of decline where premium volumes decreased by 0.2% in 2022. Looking ahead to 2024, the growth forecast stands at 2.2%, attributed to improved economic conditions and the alleviation of global supply chain disruptions, leading to a release of pent-up demand for new cars.
4. The health insurance sector accounts for 49% of global non-life premiums, while overall premiums remained stagnant in 2022 due to reduced demand following the pandemic. The United States, the largest market with an 80% share, will experience a decline of 1.4% in real terms in health insurance premiums as pandemic-related healthcare support policies come to an end this year. This could potentially offset any gains observed in other insurance categories.
Advanced Europe is expected to remain stable, while other regions anticipate insurance as primary driver of global economic growth, especially in emerging Asia. China is projected to witness an 8.9% increase in premiums in 2023, fueled by government-backed medical coverage initiatives and growing digitalization.
Recently, Jonathan Rake, CEO of APAC at Swiss Re Corporate Solutions, suggested that the Asia Pacific region presents vast opportunities for innovation as it is not constrained by legacy challenges, with companies actively embracing the new digital era.
Source: Swiss Re Survey Report