Current economic momentum is likely to continue to underpin premium growth for re/insurers globally, while ongoing opportunities to close the protection gap will in turn support further economic growth, according to a recent report by the Swiss Re Institute.
Swiss Re said that it expects insurance premiums in advanced markets to move in parallel with its forecasts for moderate economic growth in those markets year-on-year, while premiums in emerging markets will continue to outperform on the back of increasing penetration levels and solid growth.
The report noted that economic growth has long been identified as the main determinant of insurance market development, with non-life expansion having generally matched the pace of economic growth in advanced countries since saturation was achieved around 1990.
In the medium term, Swiss Re also suggested that rising insurance prices may provide some support for premiums, while the ongoing existence of large protection gaps in both advanced and emerging markets represents a sources of unrealised growth potential.
To tap this opportunity, the report recommended that insurers need to innovate to make previously uninsurable risks insurable, while increasing their natural catastrophe coverage through new offering, such as parametric coverage.
Other areas of growth potential include the development of new solutions for the growing number of intangible risks that corporations face, such as reputational losses, non-damage business interruption losses, or loss of data.
Additionally, Swiss Re claimed that more support regulatory and public policy would allow re/insurers to more effectively absorb financial market risks and invest in projects that generate sustainable economic growth, such as infrastructure.
“Just as economic momentum is an underlying determinant insurance industry growth rates, a well-functioning insurance sector further promotes economic and societal resilience,” the report stated.
Sector growth is also dependent on country-specific factors like changes in the risk landscape, price cycles, regulation, and product and distribution innovation.
This is particularly true of the life re/insurance sector, where there has historically been less correlation between GDP and global premium growth, Swiss Re said.
However, the report added that these lower growth levels do not diminish the contribution of insurers to building resilience, and highlighted the importance of closing the $180 billion global mortality protection gap through innovative solutions such as biometric risk covers and marketing strategies.