Global insurance in 2018: Pursuit of growth amid cautious optimism.

This article is a summary of the “Global Insurance Trends Analysis 2018” which we at EY released last week. For the full report, please click on the link at the end of this article (which you should if you are working in the insurance sector and want a broader sector perspective).

For a sector which lists managing risk and uncertainty as its biggest forte, it’s ironical that it too is facing unprecedented scope and magnitude of change from all possible quarters. While on one hand the underlying fundamentals (macro-economic climate, demographic shifts and political climate) remain in a state of flux, on the other hand, technological change is leading to creation of customer centric ecosystems, convergence of sectors and consequently generation of competition even from leading firms from other sectors which so far were at best customers of insurance.

Below I am covering some key trends which we saw unraveling in 2017 and early 2018. For more detailed insights, you can refer the below hyperlink.

Key highlights from the global insurance sector in the recent past:

Overall growth looked up in 2017 despite sustained margin pressure: Led by emerging markets, premium growth improved to ~3% in 2017. On the life insurance front, premium growth improved slightly in 2017 vs. 2016, mainly led by savings products in emerging markets. In case of non-life insurance, premiums rose an estimated ~3%, almost in line with the 2016 growth as macroeconomic climate continued to improve. However, sector’s profitability remained challenging due to interest rates staying low, despite recent improvements and record NatCat losses in 2017 expected to reverse weak pricing regime in place since 2013.

2017 was the largest insured loss year ever: Three category 4+ hurricanes along with Californian wildfires and Mexican earthquakes led to largest ever insured losses (US$135b+). With 93% of losses, impact was largely concentrated in North America. However, on a positive note, average global commercial insurance pricing increased for the first time after 18 quarters.

Technology-led disruption continued to unravel: Technology continued to change nature of risk, open doors to new entrants, drive convergence of sectors and create new ecosystems. Greater maturity was seen across major technologies, particularly in blockchain where multiple platforms, proofs of concepts and even live products were launched across lines.

Regulatory pressure remained high: 2017 saw insurers prepare for transition to new accounting and tax changes such as IFRS 17 and US tax regime change, implement data protection programs in light of regulations such as GDPR and refine qualitative disclosures as follow-up to major changes introduced in recent years such as Solvency II.

Private equity (PE) deals renewed optimism toward M&As in 2017: Although 2017 recorded the lowest number of deals since 2010, total value of deals grew modestly, driven mainly by an increase in US$1b+ deals compared with 2016. 2017 saw a significant increase in PE led deals, with three of the top five deals involving PE investors.

What can be expected going forward:

Life insurance: Sustained improvement in advanced markets along with a greater share of emerging markets is expected to raise global life insurance growth to ~4% by 2019. However, emerging markets’ growth is expected to moderate in the near term and converge toward the level of growth in advanced markets as several regions such as Africa and LatAm, despite revival, may not see strong rebound.

Non-life insurance: The demand for non-life insurance is expected to pickup in 2018-19 as global economic scenario gradually improves with emerging markets continuing to be the main driver. Volumes can also expect to receive a strong boost on account of sharp improvements in commercial insurance rates after a record NatCat loss year along with a sustained rise in motor rates in developed markets.

What will drive future growth:

The future will belong to those insurers which are proactive enough in targeting emerging opportunities, are agile enough to switch to new ways of working and to adopt new business models and most importantly form the right partnerships early on to develop the capabilities which will be critical in the future. Some of the major drivers which will enable sector's growth in the coming times include:

• Integrated ecosystems which will create new risk pools and monetization opportunities
• Digital adoption to enhance access to data and raise process efficiency through RPA/AI
• Blockchain to cut down cycle times and improve reliability of processes and transactions
• New demand by emerging and empowered customers in emerging markets
• Rising life expectancy to spur demand for retirement, long-term care and longevity products
• Reduced role of the state to generate demand for private insurance and wealth solutions
• Secular bear bonds market which will open up opportunities for insurers
• Persistent economic recovery to lift demand especially in lines directly covering core economic activity
• Climate change will create new risks and assets to cover for non-life insurers
• Cyber insurance to remain one of the fastest growing lines in an increasingly connected world

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Following is the link for the main report: https://www.ey.com/Publication/vwLUAssets/ey-global-insurance-trends-analysis-2018/$File/ey-global-insurance-trends-analysis-2018.pdf

For any views on this article or the report, please feel free to message me or the use the comment box below.

#insurance #blockchain #sectorconvergence