The global insurance market: 80% of growth comes from Emerging markets

6 min
  • Global insurance premiums increase in 2017 by 3.7% to EUR 3.66mn
  • Property-casualty grows by 5.0%, almost twice as fast as life
  • After a lost decade, premium growth should return to pre-crisis level – China is set to become the biggest market worldwide

According to projections by Allianz Research, the global premium volume last year rose to a new record sum of 3.66 trillion euros (excluding health insurance). Compared to 2016, the nominal increase adjusted for exchange rate effects is 3.7%. Although the growth rate of premium income accelerated slightly compared to the previous year (+ 2.9%), it lagged behind the expansion of economic activity (+ 5.9% nominal growth) for the second year in a row (see figure 1).

A huge protection gap

Global insurance penetration (premiums as a percentage of GDP) has thus fallen to 5.5% – the lowest value in the last 30 years. Compared to the pre-crisis years, it dropped by almost one percentage point (life and p&c, w/o health). This drop translates into “lost” premiums of around EUR 330bn in 2017 alone (11% of total global premiums). Roughly 95 percent of this “loss” is attributable to the regions of Western Europe and North America. Against the backdrop of increasing risks worldwide – climate and demographic change, increasing cyber incidents and geo-political tensions –, the fact that households, companies and investors are spending an ever smaller proportion of their income on protection is rather disturbing. This “protection gap” represents not only missed growth opportunities for the industry but also a less economically beneficial outcome for society as a whole.

Figure 1   5 Oil price central scenario 2019

Sources: AXCO, EIKON, national supervisory authorities, national insurance associations, national banks and statistical offices, Allianz Research

Emerging and advance markets going into different directions

Property-casualty set the tone last year: At 5.0%, it not only grew almost twice as fast as life insurance in 2017, but also recorded the largest increase since 2012. Almost all regions contributed to the positive premium development; nevertheless, the growth discrepancy between emerging and industrialized countries remains striking: while premiums in the former soared by 11.6%, mature markets only managed an increase of 3.5%.

Western Europe, however, is also lagging significantly behind this figure: premium growth in 2017 reached only 2.0% – but still the second highest value since 2007; in the previous year, the Western European markets recorded zero growth. The French and German markets performed slightly better in 2017, achieving growth of 2.5% resp. 3%.

The significantly lower global growth in life insurance premiums in 2017 (+2.8%) is primarily due to the still weak development in Western Europe, where almost 30% of global premium income is written. After a minus of 2.2% in 2016, there still is a red zero in 2017. At the end of last year, the regional premium volume was thus still almost 5% below the pre-crisis peak in 2007; insurance penetration fell from 5.6% to 4.4% during this period. In France and Germany, the trend was equally dismal, in 2016 (-1.1% in France, -1.7% in Germany) and 2017 (-1.9% in France, -0.2% in Germany) premiums also fell in each case. However, whereas penetration has fallen by about two percentage points to 5.7% in France, in Germany, penetration has fallen in the last ten years by only about half a percentage point – because the level is much lower (2.6% in 2017).

Although the life insurance markets have become significantly more volatile in recent years, the downward trend is clear. Against the backdrop of unrelenting demographic change and the necessity of private provision, the decrease of long-term savings efforts is quite alarming. The severe economic crisis in many European countries is certainly one reason for this.

But the ECB's low-interest policy also plays an inglorious role here, discouraging savings efforts. For the interest of the younger generation, which will be much more dependent on private reserves in old age than the current generation of pensioners, the sooner monetary policy is normalized the better.

Some other developed economies also experienced declines in premiums in 2017, for example, Australia (-18.2%), Japan (-11.3%) or South Korea (-4.9%). Overall, therefore, premium income in life insurance in industrialized countries shrank by 0.5% in 2017. The emerging markets, on the other hand, increased their premiums by a total of 17.2%. In particular, one country stood out: China. Of the approximately 60 billion euros in additional premiums in life, around 80% were attributable to the Chinese market. In both lines combined, last year's global premium growth totaled just under 130 billion euros. Emerging markets accounted for almost 80% of the increase, with China accounting for two-thirds of this.

As a consequence, insurance penetration, too, kept on rising in the emerging markets (see figure 2).

Looking at the drivers for insurance premium growth, it becomes clear that emerging insurance markets benefitted from all three relevant factors: economic activity increased strongly, inflation remained elevated and last but not least households and companies spend on average an increasing share of their incomes / revenues on protection (insurance deepening). In advanced markets, on the contrary, economic growth and inflation were lackluster – and on top of that, households and companies scaled back expenditures on protection (see figure 3).

Figure 2  Total GWP in EUR bn and insurance penetration in %, emerging and advanced markets grades)

Sources: AXCO, EIKON, national supervisory authorities, national insurance associations, national banks and statistical offices, Allianz Research

Outlook: Return to pre-crisis growth

Allianz Research expects the insurance markets to continue to recover in the future. After global premium growth disappointed since the financial crisis with a nominal rate of just over 3% p.a., growth should accelerate to around 6% in the next decade – almost reaching the pre-crisis pace.

This upturn reflects more stable economic growth as well as higher inflation and interest rates. This development is particularly pronounced in industrialized countries, not least in Western Europe: after zero growth of the last ten years, insurance premiums should increase again in the future by an average of just under 3% per year. This is also in line with growth expectations for the French and German markets.

However, this growth will only slow but not stop the downward trend in insurance penetration in advanced markets. In future, primarily structural reasons, as opposed to economic trends, will be responsible for the continuation of this subdued development: first, there is the demographic trend, with the baby boomer generation gradually starting to transition to retirement over the coming years. Second, achieving further increases in premium income will prove to be more and more of a challenge for the old “bread-and-butter” business of the P&C segment, auto insurance. Various changes could cast a shadow over this branch of insurance in the future: in addition to hotter competition from digital players, new technologies (autonomous driving) could help to reduce the number of accidents and claims in the future, while rates based on driver behavior (telematics) could push average prices down and general changes in behavior could limit the number of users who have their own cars (car sharing and Uber). Although these paradigm shifts in individual mobility will most certainly take more than ten years to come to fruition in full, insurers are likely to start feeling the brunt of the change.

On the other hand, the shift in weight towards the emerging markets will continue unabated in the coming years. At the end of the 2020s, around 40% of global premium income should be written in this country group; 10 years ago, this figure was still below 10%. Of the 3.3 trillion euros of new premiums expected to be written in the next decade, more than one third will be generated in China alone (see figure 4).

As a consequence, there will be a historic change of guard at the top: China will overtake the USA as the largest insurance market. Today, the USA still dominates without restriction: With 1.1 trillion euros or just over 30% of global premium income, it is still the largest insurance market worldwide, far ahead of the number two, China, with around 420 billion euros. As usual, long-term forecasts have to be taken with a pinch of salt, in particular at these times where the insurance markets are undergoing fundamental change. But this disruption offers also great opportunities. With new technologies, insurance cover can be made accessible and tangible for more people, and insurance products can become more attractive. If the industry succeeds in getting customers so enthusiastic about insurance that they again spend as much of their income on insurance cover as they did before the crisis, global premiums could be about 1 trillion euros higher at the end of the next decade than in the baseline scenario. So, the upside of digitalization, big data and AI is enormous – as will be the competition for it.

Figure 4  Global GWP in EUR bn, by regions

Sources: AXCO, national supervisory authorities, national insurance associations, national banks and statistical offices, Allianz Research