Shift in opportunities for insurers as P&C insurance to see fastest growth
She is a passionate writer whose flair for journalism earned her awards as a campus journalist. Driven by hunger for success, she strives to make the world a better place with insightful, analytical and informative piece around insurance, technology and other sections.
- Swiss Re predicts 5.3% annually to 2040
- Global insurance premiums rising to $1.3trn
- Becomes riskier and complex
A report prepared by Swiss Re, providers of reinsurance, insurance and other forms of insurance-based risk transfer, predicts that property and casualty (P&C) insurance business will become riskier and more complex in the next 20 years as there will be fundamental shift in opportunity for insurers from lower-risk, high-volume motor insurance to catastrophe-exposed property lines and higher-risk liability lines.
Noting that global P&C premiums are expected to double reaching $4.3 trillion in 2040, from $1.8 trillion in 2020, the report titled, ‘More Risk: The Changing Nature of P&C Insurance Opportunities to 2040’, touched on how emerging markets will lead the growth, with their share of global P&C premiums rising to 33 percent from 20 percent in 2020, and projecting that property insurance will become the fastest-growing line of business, improving by 5.3 percent annually with global insurance premiums rising to $1.3 trillion in 2040 from $450 billion in 2020.
According to the report, economic development will remain the key driver of rising property premiums, contributing 75 percent, translating to $616 billion of new premiums with weather-related catastrophe having a tendency to become both more intense and frequent.
In his comment, Jerome Haegeli, Swiss Re’s group chief economist, stated that the promotion of the conditions for long-term sustainable growth is primarily important in the face of climate change, which poses the biggest long-term threat to the global economy. He added that to build a sustainable insurance system that allows society to manage and absorb future risks,there is a need to make risks and opportunities quantifiable as he spelt out the importance of the report for policymakers who aim to make economic growth insurable.”
Also from the report, liability premiums, expected to be driven by social inflation which will cause the frequency of large verdicts and settlements, are to grow by 4.7 percent per year on average until 2040, to $583 billion from $214 billion in 2020 with additional areas of long-term growth potential in liability coming from climate-change effects, artificial intelligence, and social and legal changes.
The report further stated that liability claims have been rising faster than economic growth in most countries recently, causing increasing claims costs for insurers. “Covid-19 litigation, social inflation, opioid litigation and sexual harassment claims among others will shape the near-term future of liability insurance. Climate change litigation, cyber risk and the liability from emerging technologies such as artificial intelligence, hydrofracking and autonomous cars, may expand tort liability and liability claims in the period to 2040.”
The report added that the long-term growth in liability claims is influenced by economic factors in the form of medical expenses, wages, inflation and asset values in terms of societal and demographic trends, developments within the legal system and also by the scope of liability insurance cover. Similarly, it added that potentials, such as climate change litigation, which has gained momentum will further expand and standardise collective redress for consumers.
Pointing out that firms and states are at increasing risk of being found negligent in causing harmful climate change effects, the report found that transition impacts have already started to expand professional liability or the Directors and Officers (D&O) exposure to claims.
Swiss Re said, “Climate-change litigation is likely to exacerbate the current episode of social inflation, which is already being amplified by the use of litigation funding and new psychology and data-based strategies in trial bars.”
Notably, the study found that motor insurance is expected to remain the largest of all P&C lines, with premiums forecast to almost double by 2040, from $766 billion in 2020 to $1.4 trillion while its share of the market is expected to shrink to 32 percent of sector premiums by 2040, from 42 percent in 2020, owing to safety improvements from automation and smart technology, in addition to a drop in associated claims.
“It will take more time for claims-reducing safety features to permeate existing fleets in emerging markets, where vehicles tend to be driven for longer. This will accentuate the premium shift to emerging markets. We forecast their share of global motor premiums rising to 46 percent in 2040 from 26 percent in 2020. Meanwhile, as shared-economy transport models gain traction, the share of commercial motor business globally will increase to close to 27 percent in 2040, from 23 percent in 2020.”
Gianfranco Lot, head global reinsurance at Swiss Re said, “With the global portfolio shifting from lower-risk motor insurance to higher-risk lines, P&C insurance business will become more volatile. At the same time, risk modelling will become more complex, which will lead to higher capital requirements and an increased demand for reinsurance. In this fundamentally different risk environment, reinsurers will play a crucial role in keeping risks insurable.”
Crucially, the study notes that insurance can facilitate the transformational changes taking place in the economy, society and in technology, but only with collective action by the private and public sectors. For instance, while climate change remains the main risk to the global economy, insurance can provide compensation for damage to property resulting from extreme weather events. However, an institutional framework to encourage investment in green infrastructure, and upgrading zoning and building standards, are also important in ensuring insurability of property risks.
In furtherance to this, there is a need for expanded liability regimes to be curbed through legislation and regulation as the value of re/insurance needs to be protected against a trend of fragmentation via local capital and collateral requirements.
What is obtainable in Nigeria?
General insurance in Nigeria, which entails motor insurance, travel insurance, building insurance, liability insurance amongst others, mirrors the global P&C insurance practice.
While motor insurance has gained popularity over the period driven mainly by the third party motor insurance cover made mandatory, in the past few years, many insurers are beginning to intensify campaigns on other aspects such as travel insurance, building insurance and especially aspects relating to weather; flood coverage.
With climate change reflecting the variation in daily weather conditions such as temperature, humidity, rainfall and sunshine over time, and threatening economic growth in sectors depending on climatic condition like agriculture, fishery and forestry and more, this has called for the need to put in place, insurance protection to mitigate the adverse effect which could accompany extreme downpours.
The heavy rainfall in the past few days is an attestation to the extent of damage floods can cause as many people had their vehicles sink into the water and those living in riverine areas saw their houses flooded and properties destroyed.
Similar to this, insurers in the country are embracing the liability package to help employers and businesses focus on business goal development without having to channel funds into legal cost or other payment as a result of injury or damage to property caused by the owner’s business activities.
Meanwhile, the performance of the insurance industry is still below par, especially when it is weighed against the huge population and the GDP of Nigeria. In this regard, industry watchers have called on regulators, insurers and concerned entities to intensify efforts at spreading insurance in the country.