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Emerging market insurers to be hardest hit by COVID-19: Swiss Re

1st September 2020 - Author: Katie Baker

Reinsurance giant Swiss Re has reported that emerging market insurers will be the hardest-hit globally by COVID-19.

coronavirus-covid-19-pandemicIt is estimated that insurers will be hit with a 3.6 percentage point impact on premium growth in each of 2020 and 2021.

However, China’s insurance market is the exception, with average premium growth of 7% over 2020-2021, supported by a swift economic recovery, government policies, rising risk awareness and active customer engagement by insurers.

Swiss Re expects the shift in the global insurance opportunity to emerging Asia, and particularly China, to continue. China’s insurance market strength is the exception among emerging markets. As premium growth is expected to average 7% this year and next due to a fast recovering economy and supportive government policies.

Through distribution channels, insurers have been able to step up their customer engagement and promotion activity in order to leverage rising risk awareness.

A recent Swiss Re survey has found that more than 75% of Chinese consumers had been contacted by their insurers by April 2020, compared to 17% in Australia, 34% in Singapore, and 50% in Hong Kong. More than half (59%) of Chinese consumers also expressed interest in buying more insurance, higher than in the other markets surveyed.

In their report it’s predicted that life business lines will be more affected than non-life business in emerging markets during the COVID-19 pandemic. Emerging markets’ life premium growth is expected to stagnate in 2020 before recovering to grow by 7% in 2021.

China and the rest of emerging Asia is expected to be resilient, other regions are expecting deep recessions and labour market deterioration to affect demand for life insurance, resulting in large declines in premiums even in major economies such as Brazil, Mexico, Turkey and South Africa.

In non-life, Swiss Re has forecasted overall premium growth of 3% in 2020 and of around 7% in 2021, which reflects back onto the growth in China where government policies including large-scale investment in rural infrastructure and a strong push on compulsory liability insurance will need to support the worlds demand.

None-life premiums in Europe and central Asia are expected to decline rapidly due to their proximity to trade dependence on western Europe, where growth is expected to be weak, as well as recessions in Russia and Turkey. It is expected that Latin America, the Middle East and Africa will also contract, as economic weakness prior to the outbreak of COVID-19 is coupled with falls in commodity prices and external revenues.

Swiss Re has said that the direct impact on claims should be manageable since most policies would have excluded infectious diseases, and insurance penetration is still low in emerging markets. While emerging market insurers’ investment returns are under pressure from low yields, equity market rallies in countries such as Brazil, Russia and China may cushion this impact.

Despite the near-term challenges, Swiss Re has expressed confidence that emerging markets will be the growth engine of global insurance in the long term as their fundamental growth drivers, including urbanisation, growth of the middle class and rising consumer risk awareness, are still intact.

There have been many consequences of COVID-19, however if anything it has reinforced current trends such as the shift from savings to protection-type life products, along with accelerated government investment in healthcare to enable better value creation of medical insurance, specifically in the US. Other trends have included greater adoption of digital solutions that offer growth opportunities for insurers.

China’s insurance market strength is closely linked to its greater economic resilience, whereas in other emerging markets weaker resilience will make the downturn deeper and the recovery to be prolonged, which will ultimately weigh on insurance demand.

Swiss Re expects the ongoing shift in the global insurance opportunity towards emerging Asia, and China in particular, to continue. They have openly predicted that, excluding medical premiums, China will continue on track to be the world’s largest insurance market by the mid-2030s.

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