Insurance market recovery to gain pace: Swiss Re

The world economy is recovering strongly from the Covid-19 crisis, boosting insurance premium growth, according to a new Swiss Re Institute sigma report.


The swift deployment of vaccines and large-scale fiscal stimulus, including unprecedented direct transfers to households and businesses, are fuelling a strong economic bounce back in 2021. We forecast historically high global real GDP growth of 5.8 percent in 2021 after a 3.7 percent contraction in 2020. Insurance demand will benefit from this growth momentum, but inflation brings growing concerns. We expect major central banks to remain dovish on inflation for at least this year and next as policymakers prioritize a robust recovery in the labour market.

In the near term, the rollout of vaccines is the main driver of economic growth and normalisation, and in general, the advanced world is vaccinating faster than emerging markets. For example, the US and UK, with vaccination rates of 46.6 percent and 49.0 percent respectively as of 1 July, have pushed ahead with rolling back mobility restrictions. China, at the current pace of vaccination, is expected to vaccinate 70 percent of its total population by September 2021. However, vaccination is far slower in other markets – both advanced and emerging – which we expect to delay their return to full economic activity. There is a lack of synchronisation in countries’ return to normal life, creating a high likelihood of an unequal global recovery with diverging growth trajectories. Poorly prepared countries face the risk that a combination of perceived herd immunity, lockdown fatigue and economic necessity incites new waves of contagion that delay the return to normal. The robustness of individual countries’ recoveries will set the tone of growth for the rest of the decade, highlighting policymakers’ limited room for error.

Rapid global economic recovery will drive rebound in insurance markets

Global real premiums will grow by an above-trend 3.4 percent in 2021 and 3.9 percent in 2022, we forecast – a much faster bounce back than from prior recessions. The rapid global economic recovery and the strongest rate hardening for 20 years in non-life insurance commercial lines will push premiums to 10 percent above pre-Covid-19 levels this year and lift the global insurance market to more than $7trn for the first time by the end of 2022. In 2020, the 1.3 percent fall in global real premiums was about a third of the drop in GDP. As expected, premiums held up better in emerging markets (+0.8 percent) than advanced (-1.7 percent), largely due to the strength of China (+3.6 percent).

Real premium growth trend comparison: GlobalFinancial Crisis vs Covid-19. 2007, 2019 = 100

Paradigm shifts: structural trends that emerged in the early stage of Covid-19 have consolidated

The past 12 months of the pandemic have catalysed and cemented structural shifts that are transforming both life and non-life insurance markets. First visible in the initial crisis period in early 2020, these trends have emerged as dominant drivers of insurance market growth.

Risk awareness: the pandemic has been a major catalyst for heightened awareness of health, mortality and financial concerns among consumers. In both life and health business lines, the pandemic shock has boosted risk awareness and perceptions of insurance as a tool to mitigate adverse financial outcomes from unpredictable life events. More people have purchased new policies following the outbreak of Covid-19, and they are more engaged with insurance companies. In China, the first market to confront the pandemic and recover from the health crisis, consumers expressed a desire to purchase new insurance covers after life returns back to normal in 2021, compared to one year ago. This suggests the strong demand for life and health insurance is likely to persist. The pandemic has also impacted risk awareness in non-life insurance. Corporate clients’ awareness of a number of risks has risen, including about disruptions to global supply chains given the hiatus in international trade, and cyber risks, as employees work increasingly from home. Companies are seeking more comprehensive and flexible protection such as parametric covers as they adapt to new ways of working post-Covid-19.

Fernando Casanova Aizpun, senior economist, Swiss Re Institute

Digitisation: initially considered an aid to convenience or commoditisation in certain P&C personal lines, we now see digitisation transforming sales and service for both life and non-life insurers. Consumers have quickly adapted to online channels and increasingly prefer to transact digitally at all insurance touchpoints. This creates opportunities for insurers along the whole value chain, from acquiring new consumers and providing consulting advice to pricing and underwriting, generating insurance policies, processing payments and after-sale services. We expect online platforms associated with broader sources like social media (e.g. Facebook, WeChat in China and Grab in Southeast Asia) or health-tracking apps to become a key source of life insurance sales, particularly since consumers who use digital channels to buy insurance are likely to use the same channel again. Globally, regions with the best digital infrastructure, digital penetration and that enable smooth online purchases of insurance policies are likely to see greatest gains in life insurance premiums.

Inflation: a growing risk for insurers

Inflationary pressures may affect both insurers’ assets and liabilities through different channels. On the asset side, financial assets such as stocks and bonds usually perform better when inflation is low or declining. However, equities generally fare poorly in the short run when inflation is rising. On the liability side, inflation can become be an important driver of insurance claims and is typically an increasing challenge the longer the tail of a line of business. With excess economic capacity beginning to dissipate, we expect recovering insurance demand and transitory inflation drivers to inch claims costs higher. Our analyses indicate that correlations between wage, healthcare and CPI inflation increase during periods of high inflation. As such, a sustained and broad-based rise in inflationary pressures is becoming a primary medium-term risk for insurers.

The exposure of insurers to changes in prices can vary considerably, and not all may be fully captured by the consumer price index itself. For example, claims in general liability, medical malpractice and workers’ compensation are dominated by bodily injury claims. These have high exposure to medical and wage inflation. Property, specialty and professional liability on the other hand are more exposed to CPI inflation and/or social cost escalation. On the non-life business, the degree of potential exposure is driven by: (1) the duration (years of claims) of loss reserves exposed to the spike in inflation; and (2) the reserve leverage, meaning the level of affected reserves as a percentage of premiums.

As for headwinds, we see the firmer inflation environment as a growing risk for insurers, the persistent low interest rates as a hurdle for profitability and social inflation – non-economic trends increasing claims severity – as a challenge for underwriting, more specifically in the United States.

But, all risks accounted for, the scales are tipped towards a positive insurance market outlook. The upbeat cyclical economic momentum and the hardening of rates in non-life are positive short-term drivers of premium volume. Longer-term trends are also becoming valuable as higher risk awareness is helping drive demand for business interruption protection and life and health insurance, while the leap towards digitisation is enabling insurers to leverage online channels.