2022 for global insurance recovery
A REPORT BY MCKINSEY & CO. shows that the global insurance industry grew moderately by 4.9 percent in 2019 over the previous year’s record of 4.7 percent with...
AREPORT BY MCKINSEY & CO. shows that the global insurance industry grew moderately by 4.9 percent in 2019 over the previous year’s record of 4.7 percent with the total premiums reaching €5 trillion between 2010 and 2018 with a 3 percent cumulative annual growth rate (CAGR). The report also highlighted that between 2010 and 2019, the North American and developing Asia-Pacific regions contributed about 70 percent of the total premium growth from 2010 to 2019.
Further revelations from the report on premium growth inform that North America recorded the highest premium growth of €681 billion, followed by the Asia– Pacific (APAC) with €441 billion; Europe, the Middle East, and Africa (EMEA) reported €18 billion, €34 billion and €30 billion respectively, between 2010 and 2019.
Consequently, the global insurance industry, which was largely driven by life and property & casualty insurance, witnessed moderate growth in 2019 with total insurance premiums by these segments estimated at €2.3 billion for life insurance; €1.5 billion for property and casualty insurance and €1.2 billion for the health insurance in the review year. However, at regional levels, the Americas had the highest premium growth rate of 6 percent from 2018 to 2019, followed by Asia–Pacific (APAC) with 5 percent. Europe, the Middle East, and Africa (EMEA) recorded 3 percent growth. Though, North America and developing APAC contributed 41 and 27 percent, respectively, of the growth in total insurance premiums from 2010 to 2018.
Life insurance
Consistent with growth in 2017 and 2018, life insurance in 2019 accounted for 45 percent of global premiums with a 4.4 percent growth from 2018 to 2019. Global life insurance gross premiums increased at a stable 4 percent in 2019. Developing economies in APAC during this period recorded the fastest premium growth in the world, at 10 percent. These countries in 2017 earlier recorded a 19 percent growth but fell stagnant in 2018 due to trends in China, including a slowdown in the expansion of the tied-agent distribution channel, a regulatory push toward core protection products and a relatively challenging year for the economy overall.
The Mckinsey report shows that annuity global life product, which has consistently accounted for around 30 percent of life insurance products, continues to capture the plurality of the product mix as the premiums grew by 2.7 percent in 2019 compared with that of 2018. The growth in Latin America for annuity products is offsetting the trajectory in regions such as developed Asia and North America, which declined in recent years. Annuities are followed by group products, endowment and unit-linked products, and term life rounding out the final 9 percent of the product mix. All product lines witnessed gains from 2018 to 2019.
In essence, most regions saw a decline in life insurance profitability driven by a slight reduction in many major markets. For instance, in the United Kingdom, insurers have recently been favouring products that are less capital intensive and less profitable while profitability took a hit due to increases in claims, particularly driven by pension claims.
Property-and-casualty insurance
Conversely, propertyand-casualty (P&C) saw a 4.7 percent growth from 2018 to 2019 as it increased its market share to 31 percent on global premiums. North America, Western Europe, and developed APAC contributed 61 percent to the absolute growth in P&C premiums in this time frame while the emerging markets of Latin America, developing APAC, and Africa recorded the fastest growth rates of 13 percent, 9 percent, and 8 percent, respectively.
Primarily driven by growth in motor insurance premiums, the largest contributor to the absolute growth in P&C premiums from 2018 to 2019 was the United States which accounted for 38 percent while China contributed 20 percent of the absolute growth due to certain government policies that led to an uptick in liability, agriculture, credit, and guarantee products. In India as well, the government is pushing to increase coverage in crop insurance products.
Motor insurance continued to drive the overall growth in the P&C industry as it accounted for 45 percent of global P&C premiums in 2019. However, growth in this product line slowed down from the 6 percent CAGR registered from 2013 to 2018 to 4 percent from 2018 to 2019. In addition, every other P&C product line grew in 2018–2019 compared with 2013–2018.
Due to the occurrences of natural catastrophes around the world, particularly in the United States, global underwriting profitability reached 99 percent in 2017 as the year saw claims payouts reach a historic high. The net combined ratio grew slightly to 96 percent in 2018 and 97 percent in 2019.
Health insurance
Health insurance is one of the fastest-growing segments. In addition to constituting about 26 percent of global insurance premiums in 2019, it achieved 6.9 and 5.9 percent growth in 2018 and 2019, respectively. Topperforming regions - North America, at 63 percent, and developing APAC, at 22 percent - contributed to the total health premiums in 2019.
With a growth of 5 percent in 2019, North America emerged as the largest private health insurance market by premium volume and has been consistently driving the global growth of health premiums while the developed markets in Western Europe and developed APAC advanced at 4 percent in 2019.
The global health insurance market’s average combined ratio remained steady at around 98 percent between 2015 and 2019. In most Western European nations, including France, Germany, Italy, Spain, and the United Kingdom, net claims ratio remained stable in the range of 70 to 85 percent from 2015 to 2019, while the net claims ratio for the United States was also stable at 86 percent during the same period.
However, in some developing nations such as India, net claims ratios declined from 102 percent in 2015 to 93 percent in 2019 whilst also recording a fast-growing net premium earned during the same period.
Generally, the overall expenses ratio for most countries remained stable over the past few years. The United States and Western European nations recorded some of the lowest net expense ratios from 2015 to 2019.
Changes in distribution line
The insurance industry has traditionally been dominated by an in-person sales force of agents and brokers. However, in recent times, the direct sales channel has seen strong growth and in some geography, direct players are outperforming the market. Insurtech is also spreading particularly in marketing and distribution.
Global distribution of life insurance from 2013 to 2018 was led by agents and banks, with bancassurance and brokers maintaining somewhat smaller but still significant shares. Agents and branches saw a slight increase in the percentage of premiums, at the expense of the other major channels though the split remained generally stable. The penetration of direct channels remained limited at 6 to 7 percent of insurance premiums. Direct channels include premiums generated at insurance company head offices but not through brokers or agents.
During the same period, the P&C saw slightly more direct channels at 10 to 11 percent as brokers continued to dominate global P&C distribution causing their shares to grow at the expense of agents and branches. Bancassurance contributed a minor role with just 2 percent of P&C insurance distribution over that period.
COVID-19: Future of insurance mid-to-long term
Compared with other lines of businesses, the impact of COVID-19 is expected to be most severe on life insurance as the industry is expected to recover back to 2019 levels by 2022 or 2023. Sluggish recovery in this segment is primarily attributed to varying impact on personal versus commercial, the industry’s savings-oriented product mix as well as lockdown-induced underwriting and distribution challenges.
In 2020 and 2021, the pandemic is expected to have a near-term negative impact on property and casualty (P&C) premiums in both mature and emerging markets. This premium decline will likely be offset to an extent by market hardening and an associated rise in premium rates in commercial lines. In personal lines, however, the economic hardship faced by consumers due to rising unemployment and decreasing disposable income would mean a slight shift toward mandatory insurance products or a reduced coverage in existing policies.
With lockdowns and containment measures severely restricting mobility and causing a drop in new car sales and fleet sizes, the biggest impact on premiums is expected to be in motor insurance. Meanwhile, the travel and trade restrictions also affected products such as marine, aviation, and transportation, travel insurance, and other specialty lines.
Private health insurance is likely to see an uptick in demand from 2020 onward particularly in geography like India where the product is not compulsory. Though this demand would still be partially tempered by uncertainty around employment and constrained personal finances.
Conclusively, the COVID-19 crisis is expected to impact distribution in the short and long term. In the short term, while physical distribution (agents and brokers) is severely affected, digital distribution is significantly less affected. In the longer term, the industry is expected to embrace the digital mode of distribution, and this pandemic may also sensitize the customers toward direct or online channels and increase their share of the overall distribution space. It’s crucial for insurers to have visibility into variations across regions and lines of business to sustain growth in the challenging context of the coronavirus pandemic.