Strong economic recovery, rising risk awareness, and accelerating digitalization will be the three main factors that will continue to drive demand in the insurance sector in 2022.
These are the main outcomes from the World Insurance Outlook, an insightful report released by Swiss Re which provides a preview of the global insurance industry for the next year.
The publication is the result of a data driven research that takes into consideration the current key economic developments and their implications in forecasting the main trends in the global insurance industry.
According to the report, global inflationary pressures will remain elevated over the next one to three years, presenting a medium-term risk to insurers’ earnings. But even with the inflation risks, the outlook for the primary insurance market is positive.
According to the forecasts, global insurance premiums are expected to rise by an above-trend 3.3% in 2021 and 3.9% in 2022; global total premium volumes would be 10% higher than pre-crisis levels by the end of 2021, and total market size will exceed $7 trillion for the first time by the end of 2022.
The insurance sector has proven itself to be resilient to the disruptions caused by the pandemic, with premium growth outpacing GDP outcomes. In terms of growth, the lines of business most closely tied to economic activity have been the commercial lines, trade, and credit insurance, while mobility and travel suffered the most due to business disruptions and restrictions. Mobility restrictions, for example, slowed the growth in auto premiums; on the other hand, it is also true that claims declined substantially. Mortality and medical care-related insurance products, instead , performed better than in the pre-Covid era.
The recent increase in inflation has been driven by the reopening of markets and base effects from the pandemic. Currently, the main macroeconomic environment is characterized by a slow and spotty recovery, also because not all regions are the same. While in the United States and China, for example, there are signs that GDP growth is slowing, the ongoing vaccination campaign in Europe seems to be helping the economy. Emerging countries are experiencing a more uncertain and fragile recovery, mainly due to the difficulties met by the vaccination campaign and to a weaker spur from macroeconomic policies, not as strong as in some European Countries.
In the light of this scenario, these are the main insights and takeaways from the outlook:
• The insurance sector has proven resilient to the disruptions brought by the pandemic, but a strong economic recovery will be essential in all markets
• As a direct consequence of the pandemic, insurance demand will benefit from rising risk awareness and accelerating digitalization
• Hard rates will contribute to premium volume growth
• Medium-term inflation is expected to remain above pre-pandemic levels
• Policymakers will be more willing to accept higher levels of inflation, while the risk to the growth outlook remains skewed to the downside
• An increase in inflation could impact insurers’ earnings. For example, increases in medical expenses and wages could push up claims in workers’ compensation and other liability lines