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Get your slice of the world’s US$7 trillion insurance market

11 August 2021 Gareth Stokes

Global insurance demand is expected to grow by 3.3% in 2021 and 3.9% the following year, lifting the worldwide insurance market to more than US$7 trillion by the end of 2022. The latest Swiss Re Institute insurance premium report expects a faster economic and insurance rebound post-pandemic than what was experienced following the global financial crisis (GFC) of 2008-9. In ‘World insurance: the recovery gains pace, sigma No 3/2021’ the institute writes: “The economic recovery combined with the strongest rate hardening for 20 years in non-life insurance commercial lines will push premiums 10% above pre-pandemic crisis levels this year…” 

Strong growth; but not for all…

The post-pandemic economic outlook is well-documented, with most analysts forecasting a strong uptick in GDP growth thanks to the swift deployment of vaccines and large-scale fiscal stimulus. Against this backdrop, the Swiss Re Institute is pencilling in 5.8% for global real GDP growth in 2021, with China and the US leading the way. South Africa is unlikely to match the superpower economies and, following a recent manmade catastrophe, may even struggle to meet the 3.7% average growth forecast for the Middle East and Africa region. Countries in Africa are also expected to post slower economic recoveries due to being harder-hit by the pandemic; having provided lower levels of fiscal stimulus relative to developed markets; and experiencing widespread delays in vaccine roll-outs. 

The above forecasts precede the economic and insurance shock that South Africa, rated among Africa’s strongest country markets, suffered following extensive civil commotion in its KwaZulu-Natal and Gauteng provinces in July 2021. Damage to infrastructure (both insured and uninsured) is estimated at R15 billion as national fashion, food and general retailers saw as much as 10% of their national store footprints affected. Stock losses and loss of profit due to business interruption will add billions more… Recent media reports have put the total cost to the economy at R50 billion in lost production and 150000 job losses, though it will take years for the full extent of damage to reflect. State-owned special risks insurer Sasria SOC Limited will stand alongside its reinsurance partners to cover the insured losses from this catastrophe, which could run close to R15 billion once loss of profits claims are included. 

Insurance premium follows the economy

Life and non-life insurance premiums tend to follow economic growth higher, which is good news for stakeholders in the insurance, insurance broking, reinsurance and risk management disciplines. “We expect the insurance industry to earn a record US$7 trillion in premium by end of 2022,” said Jerome Haegeli, Group Chief Economist at Swiss Re Institute, to coincide with the latest sigma publication. But there are some risks that the market needs to consider. 

The sigma report warns of the possible emergence of more transmissible Covid-19 variants which might contribute to a slower, more uneven economic recovery. And as the mid-July 2021 flooding in Germany illustrates, the next catastrophe is always just moments away. “The best preparation for the next economic shock is having economic buffers in place,” noted Haegeli. “However, fiscal and monetary buffers are being depleted, which means the private insurance sector is increasingly important in narrowing protection gaps”. 

2020 was not a great year for South Africa’s life and non-life insurance sectors. The sigma report recorded small nominal growth in total life insurance premiums, climbing 0.4% from R545.470 billion in 2019 to 547.475 billion last year. But the non-life sector contracted by 3%, from R125.207 billion in 2019 to R121.451 billion in 2020. We do however retain some bragging rights having secured fourth position in a ranking of countries for insurance penetration. South Africa’s non-life premium as a percentage of GDP stood at 2.5% with our life premium penetration at 11.2%, giving a total insurance penetration of 13.7%. 

China is where the action is

Global non-life insurance premium showed resilience through 2020, growing 1.5% despite the numerous challenges; but there was a notable skewing towards advanced markets compared to developing markets. And this is the first time in 25 years that this trend has turned around! “China dominated emerging market growth after a 15% expansion in its medical insurance business, although Chinese motor premiums declined by 3% after de-tariffication of the market,” noted the Swiss Re Institute. For the rest of the emerging market, non-life premiums actually declined by an average of 2% last year. 

China is likely to dominate the insurance premium growth tables in 2021 and 2022 as well. “The Chinese economic bounce-back will drive the recovery of the world economy and boost the development of the insurance industry in China, which will further improve the societal resilience and enable the high-quality development of both the insurance industry and the Chinese economy,” said John Chen, President of Swiss Re China. Other factors that will influence the life and non-life insurance sectors include inflation; the ongoing digitalisation of the sector; and the positive development in consumer awareness. 

There should be many opportunities in the global health and protection-type insurance product universe too. The sigma reported noted that “a consumer survey conducted in 12 Asia-Pacific markets in early 2021 found that many felt under-insured and aimed to buy more protection, despite an already high rate of ownership”. We expect similar demand from the mid- to high-income segment of South Africa’s consumer population, though economic realities might offset this increased desire for risk protection. 

South Africa continues the struggle.

The report does not make any specific forecasts for the South African insurance market; but it looks certain to be tough going in the coming two years. Pandemic plus lockdown plus the July 2021 looting fiasco have derailed many businesses and it will take many years for country GDP to claw back to 2019 levels. Against this backdrop, and given consumer price inflation creeping up to 5% annually, local industry stakeholders will almost certainly struggle to achieve inflation-beating premium growth. There are also concerns that market-wide non-life insurance premium growth achieved in 2021 will be on the back of higher premiums rather than an expansion of the insured base. Against this backdrop, South Africa will undoubtedly miss out on the average 5.6% total insurance premium growth forecast for the emerging market through 2021. 

Writer’s thoughts:
My clickbait headline might have local insurance brokers up in arms about where their 2021/22 insurance premium growth opportunities will come from… Although the South Africa outlook is a bit gloomy, you can take heart from the fact that we should at least see nominal premium growth in both the life and non-life markets. Are you confident you can grow your annual insurance premium in 2021/22 despite South Africa’s challenging business environment? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].

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