Global insurance industry: peculiarities and current development trends

Source: [6].

2017 also witnessed an upsurge in claim payments in all insurance sectors in most countries. In the life sector, advantageous life insurance policies reaching the end of their terms in 2017 witnessed the highest increases, while natural disasters were the main factor in the non-life sector. Despite the challenges existing in the world, the whole insurance industry remained profitable in 2017 [7].

In this context, we believe that the development trend of both life and non-life sectors will continue (including collection of insurance premiums and insurance payments). In the life sector, it is primarily connected with problems in the pension systems of most countries of the world (shortage of pension funds), increased life expectancy, development of medical technology (increased demand for medical services and their cost), increasing risks associated with the future labour market (automated processes and robotization might reduce the need for a certain number of employees) and others.

In the non-life section, one can identify the risks associated with natural disasters conditioned by unpredictable climate change with a significant impact on agriculture, infrastructure, international transportation, etc.

There are also other very important aspects affecting development of the global insurance market: improving financial literacy of the population of almost all countries of the world (in varying degrees, but it is important to note the sustainability of this trend); increasing global financial connectivity through new electronic collaboration platforms, especially Insurtech (to be discussed below); using Big Data Analytics to assess risks and reduce the cost of insurance products, and others.

Emerging markets contributed 43% of the growth in the insurance industry in 2010-2017, 57 % in 2014-2017, whereas the share of such regions as Eastern Europe and developed Asia-Pacific region declined during the same period. The share of North America and developing Asia-Pacific region in the total premium growth constituted around 73% [8]. Adjusted to inflation, world insurance premiums rose 1.5% in 2017 down from 2.2% in 2016. Non-life premiums slowed to 2.8% growth in 2017, adjusted for inflation, from 3.3% growth in 2016. Life insurance premiums grew by 0.5 % after inflation in 2017, slower than the 1.4 % growth reported for 2016 (Fig. 2) [9]. In terms of profitability, the developing Asia-Pacific region, Latin America and Africa were the most successful regions in 2014-2017. Due to severe losses from natural disasters North America had the worst indicators, and the same factors affected the insurance industry in the developed Asia-Pacific states.

Fig. 2 Top-10 Countries with Largest Insurance Premium Volumes, 2017

Source: [9].

As of 2018, the United States was the largest insurance market, with $1 377 bn, or more than 28% of the global turnover. However, many insurance experts claim that China can become the world's largest insurance market by 2028 [4]. According to the statistics, there was a decrease in life insurance turnover in mature markets, although the same indicators showed an upsurge in the emerging markets in recent years. Nevertheless, the value of deals in the insurance M&A market has rebounded in the first half of 2018.

Asia-Pacific The Asia-Pacific life insurance market was developing more actively in comparison with the global market in 2012-2017 (Table 2). Nevertheless, according to the Willis Towers Watson 2019 report there are an increasing number of risks making the Asian commercial insurance market unsustainable and the main factors include disruptive technologies, demographic, and societal changes establishing new business requirements [10].

Table 2

Insurance growth in Asia-Pacific (CAGR, 2012-2017, %)

Source: [11].

The region has a positive growth outlook for 2019-2020. Booming Asian economies, low interest rates and quickly expanding middle class are creating a lot of new opportunities. Rising incomes, increasing awareness of insurance products, ageing society have driven the growth of insurance markets. Other factors which are expected to foster its development are product design, distribution and technology adoption. Asia- Pacific countries are among the growth drivers for the global insurance industry having a 2.8% compounded annual growth rate [12]. Non-life's relatively high growth was fuelled by overall economic growth in key markets. Policy decisions and regulation enabled growth in health, crop and auto insurance [11].

In 2018 the two milestone takeovers have marked the insurance industry in the region. For example, AXA announced the purchase of XL, whereby it established AXA as the world's largest P&C insurance company and created a powerhouse carrier in Asia [10, p. 4].

Since China's accession to the WTO, the country has adopted a schedule of gradual opening of its insurance market to foreign companies and several multinational companies, among AIG, Allianz, AXA, Aviva, Generali, Prudential and Manulife have gained footholds in China. In 2017 the Chinese government announced the increase of foreign shareholding in the capital of local insurance companies and in the end of the year China was home to 50 foreign insurers, 28 of which in life (6%) and 22 in non-life business (2%) fostering fair competition and diversification of products, improving the quality of services and paving the way for new technologies [13].

E&Y 2019 report states that the life insurers in the region linking regulatory compliance and business transformation, analysing demographic shifts in order to reassess strategic priorities, elevating the cost management approach from tactical to strategic and retaining the best of their traditional distribution channels, while wholeheartedly embracing digital.

The situation in the insurance industry varies from country to country from the economic successes that Indonesia has been experiencing to the stagnation that has become the norm in Japan; from the free markets of Hong Kong and Singapore to the heavily regulated economies of China and India; from the youthful nations of Southeast Asia to the ageing population facing South Korea; from the high life insurance penetration rates found in Taiwan (approximately 14%) to the approximately 1% penetration rate of the Philippines [14]. Due to this fact it is rather difficult for the global insurers to develop standardized products for the whole region. In terms of Insurtech deal activity Asia still falls behind North America and Europe, however the region has seen 90 transactions over the past five years.

Africa According to the PWC Report, the opportunities for growth in Africa's insurance industry are huge despite recent economic and political uncertainty, since the industry is well adapted to continuous technological disruption evidenced by the dynamics of insurance premiums (Table 3) [15]. The experts expect increase in both life and non-life gross premiums over the next three years.

global insurance industry

Insurance Premiums in Africa (2016-2017, USD mln)

Source: [16].

Europe According to E&Y report, the three largest insurance markets in Europe - UK, Germany and France - saw marginal growth in gross written premiums across life and non-life segments in local currency terms during the last five years. However, they have declined in USD terms owing to the adverse foreign exchange effects. During the last 5 years growth has been weak due to low interest rates and complex products [17].

Total European direct gross written premiums totalled €1,213bn in 2017, of which €710bn were life premiums, €371bn were property and casualty premiums and €132bn were health premiums. Total premiums increased 4.7% on 2016, with life premiums growing 5%, P&C 4.4%, and health 3.9%. In 2017, insurance penetration increased by 0.14 of a percentage point to 7.53% and ranged from 0.9% in Latvia to 12.2% in the UK [18]. Dynamics of insurance industry growth in Europe from 2012 to 2107 are presented in Table 4.

Table 4

Insurance Growth in Europe (CAGR, 2012-2017, %)

Source: [17].

North America The biggest share of global Insurtech deals has been concentrated in North America over the past five years, with 312 of 599 deals in the region during the period. Nevertheless, the proportion of deals involving Insurtech companies based in the region declined from 58% in 2014 to 49.2% in 2018, as companies in other regions of the world garner the attention of investors [19]. Having a large share of global insured losses amounting to 93%, North America was hurt the most in 2017, since all major NatCat events occurred in this region (three in category 4+, hurricanes, Californian wildfires, and Mexican earthquakes). However, growth was robust and backed by improving motor prices, rebound in commodities and overall macroeconomic uplift [20]. The United States remained the world's largest single-country insurance market in 2017, with a 28% market share of global direct premiums written. Canadian insurers were the 9^th in the world in terms of total premium volume.

South America Latin America's life insurance market is young. Annual premiums in 2017 constituted $158.5bn (non-life businesses comprise 54%, and 46% belongs to life insurance). The penetration Index is on average 2.17%. Although the market potential is huge, the insurance culture, confidence in the financial system and purchasing power are scarce. Political and economic instability are considerably affecting development of the insurance industry. Voluntary individual insurance has historically focused on the upper- and middle-income markets and only simple insurance products have been successful so far, particularly using mass market distribution channels. The main problems facing insurance companies in the region are increased competition and market consolidation, greater contagion risk and rising customer expectations.

However, against this backdrop, there is a complex regulatory landscape where companies are at various stages in advancing risk transparency and adopting global solvency standards, corporate governance and enterprise risk management (ERM) [21]. Product innovation in Latin America is expensive. Nevertheless, all countries are actively striving to achieve good international practices, following the guidelines of the framework created by Solvency II. The region is also concerned about creating regulation for cybersecurity and new players like Insurtech companies [22].

Challenges and Risks Most insurers are currently facing various obstacles involving a range of factors and requiring new marketing, financial and technological strategies as well as new insurance products. Such strategies and products must consider consumer sophistication in a country or region. Despite the advancements in various fields, the number of environmental, technological, social, political, economic and other risks that exist globally is constantly increasing. Such risks include disruption caused by technological development, climate change, environmental pollution, demographic problems, changing business environment, cyber risks, issues such as Brexit, complications in trade between the USA and China, hostilities, political instability, etc.

Currently not all insurers believe that their policies are able to cover all emerging risks appropriately. Altogether the aforesaid threats are shaping the world creating new dangers and escalating the old ones. Consumers need new tailored insurance solutions having regard to the peculiarities not only of every region, but also of every individual and entity.

The results of the BCG Digital Satisfaction and Value Survey (2013) reflect the fact that consumer satisfaction with digital interactions in the field of insurance is among the lowest. Relative satisfaction utility score amounted to 4.0% in 2013 (Fig. 3) [23, p. 8]. Thus, there is a necessity of prioritizing customers' individual needs using insights and modern technologies to develop not only affordable, but also profitable and high-quality products covering each type of risk.

The KPMG Insurtech Trends 2019 state that customer satisfaction and retention will be a more important key performance indicator than operational efficiency and insurers must change their business models. Such changes require making cultural change and shifting focus away from the product to the customer [24].