Overall, the global insurance industry witnessed moderate growth of 4.9 percent in 2019 over 2018, a slightly higher level than its CAGR from 2010 to 2018 of 3 percent, and total premiums reached €5 trillion (Exhibit 1). At the regional level, the Americas had the highest premium growth rate of 6 percent from 2018 to 2019, followed by Asia–Pacific (APAC) with 5 percent. Europe, the Middle East, and Africa (EMEA) recorded 3 percent growth.
North America and developing APAC contributed 41 and 27 percent, respectively, of the growth in total insurance premiums from 2010 to 2018 (Exhibit 2).
Considering a more recent time frame of 2015 to 2018, the share of the total contribution from developing APAC increased to about 36 percent, while regions such as Western European and developed APAC saw their share decrease during this period. Emerging markets such as Latin America, Eastern Europe, and Africa recorded high profitability and premium growth from 2015 to 2018 (Exhibit 3). Meanwhile, North America was the worst-performing region by profitability, as its insurance industry struggled with severe losses due to natural catastrophes in 2017.
Growth by coverage type
At the business-segment level, preliminary reports revealed some important trends (Exhibit 4).
Life insurance
Life insurance accounted for 45 percent of global premiums in 2019, with 4.4 percent growth from 2018 to 2019—consistent with growth in recent years. Global life insurance gross premiums increased at a stable 4 percent in 2019, keeping in line with the trend in 2017 and 2018. However, the regions leading that growth have shifted in recent years. Developing economies in APAC saw the fastest premium growth in the world, at 10 percent in 2019. These countries had recorded 19 percent growth in 2017 but fell stagnant in 2018 largely due to trends in China, including a regulatory push toward core protection products, a slowdown in the expansion of the tied-agent distribution channel, and a relatively challenging year for the economy overall.
A look at the global life product mix reveals that annuity products, which have consistently accounted for around 30 percent of life insurance products, continue to capture the plurality of the product mix, and premiums grew by 2.7 percent in 2019 compared with 2018. Notably, the growth in Latin America for annuity products is offsetting the trajectory in regions such as developed Asia and North America, which have stagnated or declined in recent years. Annuities are followed by group products, then endowment and unit-linked products, with term life rounding out the final 9 percent of the product mix. All product lines saw gains from 2018 to 2019.
Overall, life insurance profitability in most regions declined in recent years, driven by slight declines in many major markets. In the United Kingdom, for instance, insurers have recently been favoring products that are less capital intensive—but that are also less profitable. Profitability also took a hit due to increases in claims, particularly driven by pension claims.
Property-and-casualty insurance
Property-and-casualty (P&C) insurance grew by 4.7 percent from 2018 to 2019 while increasing its market share to 31 percent of global premiums. The mature markets—North America, Western Europe, and developed APAC—contributed 61 percent to the absolute growth in P&C premiums in this time frame. The emerging markets of Latin America, developing APAC, and Africa registered the fastest growth rates of 13 percent, 9 percent, and 8 percent, respectively.
The largest contributor to the absolute growth in P&C premiums from 2018 to 2019 was the United States (38 percent), primarily driven by growth in motor insurance premiums. China contributed 20 percent of the absolute growth. In China, certain government policies have led to an uptick in liability, agriculture, credit, and guarantee products. Similarly, the government in India has been pushing to increase coverage in crop insurance products.
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Accounting for 45 percent of global P&C premiums in 2019, motor insurance continued to drive the overall growth in the P&C industry. However, growth in this product line slowed down from the 6 percent CAGR registered from 2013 to 2018 to 4 percent from 2018 to 2019. Meanwhile, every other P&C product line saw higher growth in 2018–19 compared with 2013–18.
Global underwriting profitability reached 99 percent in 2017—a year that saw claims payouts reach a historic high due to the occurrences of natural catastrophes around the world, particularly in the United States. The net combined ratio improved slightly to 96 percent in 2018 and 97 percent in 2019.
Health insurance
Health insurance continued to be the fastest-growing segment: it achieved 6.9 and 5.9 percent growth in 2018 and 2019, respectively, and made up about 26 percent of global insurance premiums in 2019. Top-performing regions by way of contribution to the €69 billion absolute growth in total health premiums in 2019 were North America, at 63 percent, and developing APAC, at 22 percent. North America is the largest private health market by premium volume and has been consistently driving the global growth of health premiums, with growth of 5 percent in 2019. The developed markets in Western Europe and developed APAC grew at 4 percent in 2019.
The global health insurance market’s average combined ratio remained steady at around 98 percent from 2015 to 2019. Net claims ratios in most Western European nations, including France, Germany, Italy, Spain, and the United Kingdom, remained stable in the range of 70 to 85 percent from 2015 to 2019. The net claims ratio for the United States was also stable at 86 percent in that period. However, net claims ratios declined in some developing nations such as India, which saw a decrease from 102 percent in 2015 to 93 percent in 2019. Net premiums earned in India grew faster than claims during that period. Overall, the expense ratio for most countries has remained stable over the past few years. The United States and Western European nations recorded some of the lowest net expense ratios from 2015 to 2019—notably 13 percent in the United States.
Changes in distribution
While insurance distribution trends differ by region and by product, the industry has traditionally been dominated by an in-person sales force of agents and brokers. However, the direct sales channel has seen strong growth in recent years—and in some geographies, direct players are outperforming the market. Insurtechs are also increasingly prevalent, particularly in marketing and distribution.
In life insurance, global distribution from 2013 to 2018 (the latest year for which data are available) was led by agents and banks, with bancassurance and brokers maintaining somewhat smaller but still significant shares. While the split remained generally stable, agents and branches saw a slight increase in percentage of premiums, at the expense of the other major channels. The penetration of direct channels—which, in addition to telephone and internet sales, include premiums generated at insurance company head offices (but not through brokers or agents)—remained limited at 6 to 7 percent of insurance premiums.
In P&C, the direct channel saw slightly more penetration at 10 to 11 percent during the same period. However, brokers continued to dominate global P&C distribution—and their share grew in that period, at the expense of agents and branches. Bancassurance played a minor role with just 2 percent of P&C insurance distribution over that period.
The impact of COVID-19 is expected to be most severe on life insurance compared with other lines of businesses. The industry is expected to recover back to 2019 levels by 2022 or 2023. Primary reasons for this more sluggish recovery compared with other lines of business include the industry’s savings-oriented product mix, varying impact on personal versus commercial, and lockdown-induced underwriting and distribution challenges.
The pandemic is expected to have a near-term negative impact on P&C premiums in both mature and emerging markets, particularly in 2020 and 2021. In commercial lines, this premium decline will likely be offset to an extent by market hardening and an associated rise in premium rates. In personal lines, the economic hardship faced by consumers due to rising unemployment and decreasing disposable income would translate to a slight shift toward purely mandatory insurance products or a reduced coverage in existing policies. The biggest impact on premiums is expected to be in motor insurance, with lockdowns and containment measures severely restricting mobility and causing a drop in new car sales and fleet sizes. Travel and trade restrictions have also affected products such as marine, aviation, and transportation (MAT), travel insurance, and other specialty lines.
Meanwhile, demand for private health insurance is likely to see an uptick from 2020 onward, particularly in geographies where the product is not compulsory, such as India. This demand would still be partially tempered by uncertainty around employment and constrained personal finances.
Finally, the COVID-19 crisis is expected to impact distribution in both the short and long term. In the short term, the impact of lockdowns will differ among distribution channels. While physical distribution—for example, agents and brokers—is severely affected, digital distribution is significantly less affected. In the longer term, the industry is expected to embrace the digital mode of distribution, and this pandemic may also sensitize the customers toward direct or online channels and increase their share of the overall distribution space.
To sustain growth in the challenging context of coronavirus pandemic, it’s crucial for insurers to have visibility into variations across regions and lines of business.
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