Insurance Markets: Outlook 2027

Life is looking up for the insurance markets.

Global life and property and casualty (P&C) insurance premiums are set to grow by almost 6 percent annually over the next decade from 3.1 percent per annum between 2008 and 2016, estimates an Allianz study titled ‘Global Insurance Markets – Current Status and Outlook Up to 2027’.

In value terms, this means the global insurance market could be worth 6.803 trillion euros by 2027 versus 3.606 trillion euros in 2016 – evidence that the global economy is limping back to normal growth and inflation after the financial crisis.

Interestingly, the recovery is most pronounced in mature markets. Emerging from nine years of stagnation, Western Europe is set to grow by 3 percent per annum – Germany’s growth is also expected to be around the same. “The long lean spell of the crisis years is finally behind us,” says Allianz Chief Economist Michael Heise. “In particular in Western Europe, many markets look back at a lost decade, in terms of premium income they are today smaller than before the crisis.”

The balance between life and P&C markets will also shift in the period. During lean times, the P&C segment was rather robust, clocking 3.8 percent annual global growth since 2008 versus 2.8 percent for the life segment. The divergence was starker in Europe as life premium income shrank 0.5 percent annually on average but P&C premiums rose 1.2 percent.

There are no surprises there. Other than stagnating incomes and high unemployment, extremely low interest rates kept demand subdued as classic savings products lost their appeal.

However, a revival in demand for life products is imminent, driven by a pressing need for private retirement savings as well as by new concepts and solutions brought in by insurers. The outlook for interest rates is also somewhat better, even if far from rosy. Worldwide, life insurance premiums should grow 6.5 percent annually until 2027, while average growth in the P&C segment is seen at 4.9 percent. Emerging markets including China are expected to be the drivers of this growth.

In the next decade, growth in emerging markets will remain at a much higher level than in the developed world – despite the acceleration in mature markets. Asia is set to keep its crown as the fastest-growing region in the world, with many markets seeing double-digit growth. China may well be the jewel in this crown – its market is expected to more than quadruple over the next decade, logging growth of almost 14 percent per year.

By 2027, China will be the second-largest market in the world at 1.539 trillion euros, within striking distance of the U.S. market but bigger than the whole of Europe. “Over the next ten years, one in three euros of additional global premiums will be earned in the Middle Kingdom,” says Heise.

In Asia, excluding Japan and China, life insurance is forecast to again show stronger annual growth than P&C insurance, that too, by a wide margin: 8.7 percent against 6.9 percent.

The lead of the life segment over P&C will be even wider in China at 15.7 percent versus 9.9 percent, reflecting the huge pent-up demand as well as political support for private provisions in the region.

“Growth in Asian life markets will be extraordinary over the coming years,” says Michaela Grimm, co-author of the study. “But this does not reflect Asian extravagance but rather sheer necessity, given the demographic development in the region: In 2050, more than half of the global population aged 80 and older will live in Asia. But this rapid aging hits social security systems for old age that are not fully developed yet. So, most people have no choice but to put money aside themselves.”

Overall, the weight of insurance in economic output is expected to rise. However, it’s the emerging markets that will largely drive this, with certain structural changes reining in the rise in mature markets.

Noteworthy are demographic and technology-driven changes. The generation of baby-boomers is starting to retire and it may become increasingly difficult to increase premiums in motor insurance - the mainstay of P&C insurance - as new developments could have a dampening effect. Digital offers are making the environment more competitive. Besides, new technologies such as autonomous driving could reduce accidents and claims, behavior-dependent pricing (such as the use of telematics) could bring down average prices and behavioral changes (car-sharing and ride-sharing) could limit the number of car owners.

So returning to solid pre-crisis growth could prove difficult, especially for mature markets. However, new technologies could offer immense opportunities. Digitalization, Big Data and artificial intelligence are not just tools to cut costs, make processes more efficient and increase competition. They can also make insurance accessible to more people and fuel new offers, better services and more attractive products. So, new technologies can actually generate more demand for insurance.

“The insurance industry will change fundamentally over the next decade,” says Arne Holzhausen, Allianz economist and co-author of the study. “The challenges are immense – as are the possible gains: If the industry can inspire its customers and people were to spend the same share of income on insurance as before the crisis, premium income would be 750 billion euros higher in 2027 than in our base case.”

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The Allianz Group serves 86 million retail and corporate customers in more than 70 countries, making it one of the world’s largest insurers and asset managers. In 2016, over 140,000 employees worldwide achieved total revenues of 122.4 billion euros and an operating profit of 10.8 billion euros. Allianz Group managed an investment portfolio of 653 billion euros. Additionally our asset managers AllianzGI and PIMCO managed over 1.3 trillion euros of third-party assets.

Allianz customers benefit from a broad range of personal and corporate insurance services, ranging from property and health insurance to assistance services to credit insurance and global business insurance. As an investor, Allianz is active in a variety of sectors including debt, equity, infrastructure, real estate and renewable energy. The Group’s long-term value strategies maximize risk-adjusted returns.

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