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Global outlook: emerging from the ‘lost decade’

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Things are looking up for global insurance markets, according to a detailed new report from insurance heavyweight Allianz.

The paper examines the current status and outlook to 2027, and concludes that insurance markets are about to shift up a gear.

After the meagre years of the financial crisis, insurers can finally look ahead with more confidence.

From 2008 to last year, worldwide insurance premium grew by 3.1% annually, but growth should accelerate to 5.9% per year over the next decade, with the recovery mirroring the global economy’s return to normal growth.

As a result, the global insurance market should be worth €6.8 trillion ($10.05 trillion) by 2027, compared with €3.6 trillion ($5.32 trillion) last year.

The turnaround is most pronounced in mature markets such as western Europe, which is emerging from “nine years of stagnation”.

“The long, lean spell of the crisis years is finally behind us,” Allianz Chief Economist Michael Heise says.

“In particular in western Europe, many markets look back at a lost decade. In terms of premium income they are today smaller than before the crisis.”

However, he is quick to note the turnaround will be far from perfect.

“We are not set for fireworks in the future, either. In mature markets, insurance premium growth may trail behind economic activity for the time being.

“And there is a (sizeable) fly in the ointment for European insurers that do their accounts in euros: with a stronger euro, insurance premiums in other currencies lose value – this effect could shave a full percentage point off global growth per year.”

Over the next decade the balance between life insurance and property and casualty (P&C) is expected to shift in favour of life.

Allianz says the P&C sector was “quite robust” during the crisis years, growing at 3.8% per year on average since 2008, while the life sector clocked an average rate of 2.8%.

Demand for life products is expected to revive as insurers bring new concepts and solutions to the market. Life premiums are tipped to grow at 6.5% per year until 2027, against average P&C growth of 4.9%.

“The driving force behind this development will be emerging markets, including China, where life markets are set to record double-digit growth over the entire decade,” Allianz says.

Overall, China may be the turnaround’s “jewel in the crown”, with its insurance market expected to more than quadruple over the next decade, growing at almost 14% per year.

By 2027 China will be the second-largest insurance market in the world at €1.54 trillion ($2.28 trillion), within striking distance of the US and bigger than all of Europe.

Allianz says insurance penetration is also expected to rise over the next 10 years, from 5.6% to 5.8%, but this will be almost entirely down to emerging markets and will not offset the decrease during the financial crisis, before which penetration was at 6.4%.

However, it believes new technology offers huge opportunities by generating more demand for insurance.

“Digitalisation, Big Data and artificial intelligence are not merely instruments to reduce costs, make processes more efficient and increase competition; first and foremost, they can make insurance for more people more accessible, bringing insurance to life by new offers and better services and making insurance products more attractive.”

Co-author of the study and Allianz economist Arne Holzhausen says the insurance industry will “change fundamentally” over the next decade.

The challenges are immense, he says, but so are the possible gains.

“If the industry can inspire its customers and people were to spend the same share of income on insurance as before the crisis, premium income would be €750 billon ($1.11 trillion) higher in 2027 than in our base case.”