The macroeconomic environment continues to be top-of-mind among insurance leaders. With growth in global real gross domestic product (GDP) slowing from 4.1 percent in 2010 to 3 percent in 2011, insurance leaders continue to experience significant headwinds challenging profitable growth. As reported by Swiss Re, insurance overall direct premiums declined 0.8 percent in real terms in 2011. Nevertheless, pockets of opportunities do exist and will continue in the near term. Stabilizing social/political conditions, investments in infrastructure and demographic progression continue to fuel strong positive GDP growth and increasing insurance penetration in emerging economies. In these economies, overall direct premiums increased 1.3 percent in real terms in 2011, with non-life premiums increasing 9.1 percent.
As insurers look to these emerging economies for growth, in particular Latin America, the Middle East, Asia, Africa and Eastern Europe, the need exists for traditional products as well as new solutions for risk management targeting the emerging middle class. By 2025, annual consumption in emerging markets will reach USD30 trillion, up from USD12 trillion in 2010 and will account for nearly 50 percent of the world’s total consumption. Yet individuals living in these economies have limited access to financial services including the ability to transfer and finance risk.
There are many considerations for insurers before they enter an emerging market. The entrant needs to understand the reputational risk issues and ensure that the company’s governance/compliance approach is adaptable to the regulatory environment.
They must have the ability to monitor the economic environment and build flexibility into their strategy, allowing for adaptation to future economic conditions. Another critical consideration is an achievable, efficient operational model supported by multiple distribution channels that leverage technology to constrain costs.
Of particular interest is the magnitude of the “emerging” middle class arising from these emerging economies. The World Bank estimates that the global middle class is likely to grow from 430 million in 2000 to 1.15 billion in 2030. In 2000, developing countries were home to 56 percent of the global middle class, but by 2030 that figure is expected to reach 93 percent. Insurers capable of gaining brand recognition among these first-time consumers will have a competitive advantage in capitalizing on growth opportunities. The opportunity is even greater for insurers who tailor products and services that contribute to the economic progression of the underserved into the middle class. To assist insurers as they embrace opportunities for profitable growth in emerging economies Guy Carpenter is currently working on the development of an industry-owned microinsurance facility. The facility is designed to overcome the hurdles inhibiting growth in the microinsurance segment - distribution, pricing without data, education and reputation risk to name a few.
In addition to opportunities for profitable growth in emerging economies, innovations in energy, transportation, technology and health are needed to eventually fuel global growth. Our ability to finance and manage the risk associated with these innovations is critical to attract the necessary investment.
Opportunity does exist in established economies although it requires new products, new distribution partners and pricing models.
Opportunities do exist for profitable growth if we look to emerging markets, the emerging middle class and the emerging risks. Capitalizing on these opportunities will require “thinking differently” about many aspects of our business - business model, distribution platforms and success metrics. Also, firms that embrace opportunities in new markets, new customers or new risks by “thinking differently,” will develop the ability for reverse innovation within their traditional markets and products resulting in even greater advantages.