Insurance and reinsurance companies around the world have an opportunity to take advantage of the evolving risk landscape and the rapidly changing economic environment, according to Victoria Carter, Vice Chairman of Global Strategic Advisory for Guy Carpenter.
Insurers and reinsurers in all parts of the world must adapt to the myriad of changes in the global economy and work to transform the challenges brought about by technology, urbanisation, increased interconnectedness, and an ageing population, into opportunities for expansion and to do good for international societies and economies.
In emerging markets such as parts of Asia, India, Africa, and Latin America, for example, urbanisation is occurring at a rapid pace in response to a growing middle class and higher incomes. Carter explains that by 2050 the world’s urban population is expected to experience 50% growth to more than 6 billion, while rural populations decline.
“By 2025, almost half of the companies with revenues in excess of USD 1 billion will be headquartered in markets such as Mumbai and Shanghai along with rapidly expanding hubs such as Hsinchu in Northern Taiwan and Santa Catarina State in Brazil,” said Carter.
For new hubs in places like India and Brazil infrastructure will be key, and for infrastructure to be developed investment is essential, with both of these elements reliant upon insurance and reinsurance protection. Carter states that between 2013 and 2030 some $43 trillion will be invested in urban infrastructure, underlining just how big of an opportunity urbanisation and subsequent infrastructure projects are for insurers and reinsurers.
The rise of advanced technology is a force expected to disrupt all industries of the world, including the risk transfer landscape. But while the rise of InsurTech and FinTech might cause re/insurers to need to adjust their business models, it also provides an opportunity for players to work with technology focused companies to develop innovative solutions and business models, which could prove beneficial to both the companies and the end consumers.
“These changes can be unsettling, but as new risks emerge, opportunities to transfer risk follow. As the insurance industry harnesses the data and new technology, its ability to understand, measure, monitor and price risk significantly improves,” said Carter.
One thing technological advances have facilitated already and that will likely continue to intensify in the future, concerns the increased interconnectedness of the world, a trend that Carter feels re/insurers can take advantage of.
“The surge in technology-driven connectivity is spawning a new phase of globalization full of opportunity, with equal exposure to rampant volatility, interruption and malicious attack,” said Carter.
According to Carter, an ageing global population is driving a fourth disruptive phenomenon across the re/insurance industry.
“For example, as Europeans’ lifespans increase and they have fewer children, the share of people aged 65 and older is projected to double from 16 percent in 2005 to 30 percent in 2050. Simultaneously, the most economically active age group (25- to 64-year olds) in Europe is projected to decline to less than half the population by 2050,” explained Carter.
As a result insurers and reinsurers might need to reassess their business models and question whether current approaches and models are sufficient and adequate to meet the demands of a new economic environment. As global ageing trends suggests additional pressure on society’s ability to fund the growing costs of retirement and healthcare as people live longer.
“The (re)insurance sector must also recognize the potential threats and opportunities for innovation this creates for the industry. It is up to the (re)insurance sector to grasp the myriad opportunities this environment creates and drive the industry transformation that needs to take place,” said Carter.