Strong growth forecast for global insurance markets as demand for risk protection increases, says Swiss Re Institute

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  • Global insurance premiums are expected to increase by 3.4% in real terms in 2021, 3.3% in 2022 and 3.1% in 2023
  • Global insurance market set to exceed $ 7 trillion in premiums for the first time by mid-2022, earlier than expected
  • Profitability of insurance supported by increased awareness of risks in both life and non-life segments following the COVID-19 pandemic, and continued tightening of rates

Zurich, November 17, 2021 – The latest sigma study from the Swiss Re Institute predicts that the global insurance industry will reach a new global premium record by mid-2022, exceeding $ 7 trillion. This comes earlier than the Swiss Re estimate in July and reflects growing risk awareness, growing demand for protection and tightening rates in commercial non-life insurance lines. The outlook for the insurance sector is also supported by a strong cyclical recovery from the COVID-19 shock, but economic growth is expected to slow over the next two years due to the energy price crisis, problems of prolonged supply and inflation risks. Long-term structural support for growth is needed, as the Swiss Re Institute’s resilience analysis shows in this sigma report.

Climate change and digitization are important trends shaping the global economy and insurance markets. Rapid decarbonization becomes imperative and the companies’ approach to the transition to a green economy will determine the economic outlook. The insurance industry can support the transition to a low-carbon economy, not only by absorbing losses from disasters, but also by encouraging investments in sustainable infrastructure that help mitigate the impact of volatile extreme weather conditions. The adoption of digital technologies not only plays a role in increasing global productivity growth, but research from Swiss Re also found that the pandemic has transformed consumers’ receptivity to interact digitally with insurance, indicating growth potential.[1] A third significant trend is the growing divergence in countries’ growth and socio-economic indicators such as inequality – a potential downside risk.

“The economic recovery we are experiencing is cyclical and not structural, with lower macroeconomic resilience today than before the COVID-19 crisis. As such, we should be anything but complacent. Given its ability and expertise to absorb risk, the insurance industry is essential to making societies and economies more resilient. Yet, for inclusive and sustainable growth, everyone must be on board. Green growth is only sustainable if it is also inclusive. We have a unique opportunity to build a better market system. For this, all stakeholders will have to accept and internalize the costs of climate change, and political decision-makers will have to take into account the distributive effects of their economic policies on their populations. This will help create the transition we need for a sustainable path to a net zero economy by 2050, ”said Jerome Haegeli, Chief Economist at Swiss Re Group.

The Swiss Re Institute’s sigma study predicts that global GDP growth will be strong in 2021, at 5.6%, then slow to 4.1% in 2022 and 3.0% in 2023. Inflation is the macroeconomic risk dominant in the short term, fueled by the energy crisis and prolonged supply -secondary issues. Price pressure is expected to be most acute among emerging markets as well as in the UK and US.

Market rebound reflects resilience of the insurance sector
The Swiss Re Institute estimates that global non-life premiums will increase by 3.3% in 2021, 3.7% in 2022 and 3.3% in 2023. Property disaster rates are expected to improve in 2022 after a year of above average losses. Damage rates are also expected to be higher next year due to ongoing social inflation, while personal insurance is expected to benefit from the first signs of improving auto prices in the US and Europe. Global health and medical insurance premiums are expected to rise, driven by growing US economy and stable advanced market demand. Expansion into emerging markets is expected to be strong, with China expected to grow 10% in each of the next two years, largely driven by strong demand for medical insurance, including critical illness coverage.

Global life premiums are expected to increase 3.5% in 2021, 2.9% in 2022 and 2.7% in 2023. Protection-type products are expected to experience strong demand, supported by greater risk awareness, a resumption of group activities and increased digital interaction. Savings activity is expected to grow moderately over the next two years, reflecting a slight improvement in government bond yields and a pickup in employment and household incomes. As the pandemic continues to affect the life insurance industry, excess mortality shows a mixed trend. Unlike many European countries, the United States has experienced continued excess mortality since the start of the pandemic and death benefits paid have increased in the first half of this year. Life insurers in Latin America have faced unprecedented pandemic claims, with the region particularly hard hit by COVID-19. In Brazil, the life insurance benefit ratio more than doubled in April 2021, as the pandemic is the costliest event on record for the local insurance industry in Mexico, totaling $ 2.5 billion. 18-month insured losses in September 2021. This exceeds the $ 2.4 billion in losses caused by Hurricane Wilma in 2005.

Growing awareness of risk generates demand for more insurance protection. The pandemic shock has highlighted the important role the insurance industry plays as a risk absorber in times of crisis by providing financial assistance to households, businesses and governments. At the same time, supply chain disruptions show that better protection is needed to improve society’s resilience, and record weather extremes this year add urgency to the global race to net zero. Consumers are also supportive of digital and online insurance, and it is expected to grow rapidly. However, increasing inequality could exacerbate social inflation, which is defined as the increase in insurance claims driven by significant litigation costs.

Market conditions suggest that the positive price dynamics will continue in all industries and regions. The increase in claims due to inflation in all industries, the continuation of social inflation in the United States and the persistence of low interest rates will be the main factors in the tightening of the market, “said Jérôme Haegeli.

Table 1: Real GDP growth, inflation and interest rates in selected regions, 2020 to 2023

2020

2021

2022

2023

Real

ISR

Consensus

ISR

Consensus

ISR

Consensus

Real GDP growth, annual average,%

we

-3.5

5.5

5.6

3.7

4.0

1.5

2.4

Eurozone

-6.6

5.0

5.1

4.1

4.3

2.0

2.1

China

2.3

8.0

8.0

5.1

5.4

5.7

5.4

Inflation, All-items CPI, annual average,%

we

1.2

4.7

4.4

5.0

3.3

2.2

2.3

Eurozone

0.3

2.5

2.4

2.6

2.0

1.5

1.5

China

2.5

1.3

1.0

2.3

2.2

2.5

2.2

Yield, 10-year government bond, year-end,%

we

1.0

1.4

1.7

1.6

2.0

1.9

2.4

Eurozone

-0.6

-0.2

-0.2

0.0

0.0

0.2

0.4

Note: the key rate for the euro zone refers to the interest rate on the main refinancing operations; data as of November 11, 2021. Source: Bloomberg, Swiss Re Institute.

Table 2: Growth forecasts for total insurance premiums, in real terms

2021

2022

2023

World

3.4%

3.3%

3.1%

Advanced markets

3.3%

2.5%

2.2%

North America

2.3%

2.5%

2.2%

EMEA

4.9%

2.0%

2.0%

Asia Pacific

3.9%

3.6%

2.8%

Emerging Markets

3.4%

6.5%

6.2%

Excluding China

5.7%

5.3%

4.9%

China

1.5%

7.1%

6.9%

Latin America and the Caribbean

7.5%

4.4%

3.5%

Emerging Europe and Central Asia

3.6%

3.5%

2.9%

Emerging middle east

2.5%

4.7%

4.5%

Africa

1.9%

2.0%

2.6%

Source: Swiss Re Institute.

How to order this sigma study:

The English version of Sigma 5/2021, “Turbulence after lift-off: global economic and insurance outlook 2022/23”, is available in electronic format. You can download it here.


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