Some of the current improvements in the overall market environment offer a chance for the insurance sector to embrace new market dynamics, such as the increased use of digital solutions, said Swiss Re in a statement released in Monte Carlo during the Les Rendez-Vous de Septembre.
Companies that respond proactively with more relevant solutions and services in support of their customers’ goals are expected to benefit most from long-term opportunities. While the current environment is still influenced by an abundance of capital, rising interest rates are having a positive impact on long-tail lines of business in life and casualty insurance, as well as on the return profile of investment opportunities across the industry. Looking ahead, the continued growth of risk pools combined with the large and growing protection gap, represent the most significant growth opportunities for the industry.
Addressing the challenges and opportunities of a very large protection gap
The Nat CATs in 2017 showed the importance of insurance coverage and once again highlighted the protection gap. It persists in both emerging and advanced markets, and across all lines of business – with a global estimated premium potential of $800bn. The Swiss Re Institute estimates the global size of the insurance market to be at $4.7tn. Roughly 2bn people worldwide have no access to insurance, resulting in a very large protection gap. Therefore, a real potential for the reinsurance industry exists to support the global population.
Global Nat CAT losses totalled $2tn over the last decade, 70% of which were uninsured, according to estimates of the Swiss Re Institute. The uninsured losses from natural disaster events are expected to exceed $150bn annually, underlining the need to close that gap and help societies better protect their people and assets against risks.
For reinsurance to make a difference, the industry must seek to address the key drivers that help create this gap, such as lack of awareness, access, affordability and understanding, as well as product design elements. In this context, having close client relationships, offering know-how and expertise and supporting clients with large transactions as well as new, innovative, technology-driven solutions will be critical for success.
Rates are expected to be broadly stable
The reinsurer expects overall broadly stable price development, with heterogeneous trends depending on lines of business and market. After many years of price erosion and only moderate improvements in 2018, large market segments remain inadequately priced to achieve sustainable returns on equity. Gradual improvements are expected, depending on emerging loss experience and level of rate inadequacy.
Swiss Re’s group chief underwriting officer Edouard Schmid said, “We believe an inflection point in the pricing cycle for non-life insurance has been reached. For 2019, we broadly expect stable rates, provided no major event happens this year. Underwriting margins in major non-life insurance markets need to improve more to deliver sustainable returns on equity.” M