Lloyd’s looks to emerging economies
A fundamental shift in global GDP over the next 20 years will create tremendous challenge and opportunity for insurers, demanding a shift in the profile of their premium income.
Lloyd’s of London is one insurance market that understands this well and CEO Dr Richard Ward was in South Africa in April to meet with the Lloyd’s partners in the country and on the continent.
Emerging markets attract insurers
In 2012, 30 per cent of global GDP came from developing economies, compared with 70 per cent from developed economies. In 2030, it is expected that developing economies, in a shift that economists have called more significant than the industrial revolution, will produce 70 per cent of global GDP.
Although in 2012, 41 per cent of Lloyd’s premium income came from North America, 26 per cent from the UK and Europe and only 17 per cent from Asia and the rest of the world, the insurance market’s Vision 2025, which was launched in May 2012, takes this global shift into account and details plans to expand its growth in developing economies. Priority countries include China, Mexico, Turkey, Brazil and India.
According to Dr Ward, sub-Saharan Africa is an important market for Lloyd’s. The insurance market writes $720 million worth of business in the region, about 40 per cent of which, or $280 million, comes out of South Africa. “Africa is a small market for us but should be bigger and we will be looking more closely at how we can support businesses here with the specialist risk management expertise that we have in London,” he says.
This shortfall was picked up by governments and therefore by taxpayers.
Ward notes that low penetration levels are a major challenge for insurers. This is evidenced by the fact that in 2011, the costliest year on record for insurers as a result of natural catastrophe losses including the Lloyd’s market, there was a $328 billion gap between economic and insured losses. Economic losses were at $435 billion, while insured losses sat at $107 billion. “This shortfall was picked up by governments and therefore by taxpayers,” he remarks, questioning whether the insurance industry is offering the right coverage to markets with significant natural catastrophe exposure if they are clearly not taking out this cover.
“These are reasonably sophisticated markets, such as Japan and Thailand. I’ve certainly thrown down the challenge to Lloyd’s to create the right products for these markets. He emphasises that Lloyd’s’ differentiator is its underwriting talent and says that he looks forward to offering African markets more of these specialist underwriting skills.
Lloyd’s less competitive
According to South African CEO of reinsurance broker Aon Benfield, Simon Chikumbu, the Lloyd’s market has an 11 per cent share of the reinsurance market in South Africa and a 2.5 per cent share of the direct insurance market. In his opinion, there is more space for Lloyd’s to grow in the direct market than there is in the reinsurance space. It counts in Lloyd’s’ favour that it has an admitted status in South Africa, which is beneficial for solvency purposes.
However, Chikumbu says that Lloyd’s has become less competitive in recent years in the pricing of its catastrophe reinsurance programmes. Despite offering world-class service, he says the Lloyd’s market has a low appetite for proportional reinsurance, is very selective with the risks it accepts and has lost some market share.
Chikumbu notes that Aon Benfield has had some queries from Chinese reinsurance companies about the potential for writing reinsurance business on the continent.