In many ways, last year we all suddenly felt like Tom Hanks’ character Chuck Noland in the classic Cast Away. While our islands ended up being the four walls of our apartments or houses, the sense of isolation felt almost as real as on a desolate island. Governments, companies, and individuals experienced similar hurdles while trying to rebuild a new sense of normal. 

Stepping into 2021, we look back at a tumultuous year and a decade of an economic environment characterized by volatility, uncertainty, complexity, and ambiguity (VUCA). The insurance industry has also suffered its share of slings and arrows, but weathered the storm with more resilience, says the latest Allianz Global Insurance Report. 

In 2020, global gross written premiums in Life (excluding Health) and P&C declined by -2.1 percent. This was almost double the rate of decline seen after the Great Financial Crisis (GFC) in 2009, but it was less severe than feared. What kept the ship afloat was largely the P&C business, which even recorded a small increase in premium income of +1.1 percent last year.

The reason behind this resilience in non-Life business can mainly be attributed to digitalization and the fast and smooth digital processes in both sales and operations. Life business, prone to more complexity and advice-intensive products, didn’t reap so many benefits of digitalization, declining by 4.1 percent.

But for Life, 2020 was not the only year to forget. Over the last decade, Life premiums grew by only +2.4 percent globally, half as fast as in the previous decade. The main reason behind this was the low interest environment in the aftermath of the GFC. Particularly hit was Western Europe, the largest Life market, whose premiums grew by a meager +0.6 percent per year in the 2010s.

If we had to announce the winners of the last decade, Asia and particularly China, whose market share doubled in the 2010s, came on top. The U.S., however, remains by far the largest market, accounting for 32 percent of the global premium pool in 2020, just one percentage point lower than at the beginning of the decade.

Looking at 2021, global GDP is expected to rebound strongly, clocking growth above 5 percent, with more than one fourth of growth being driven by the U.S., who will take over the role of the global growth engine from China.

Europe, on the other hand, has some catching up to do especially when progress on the vaccination front finally allows the economy to re-open. Eurozone’s GDP is expected to expand by +4.0 percent in both 2021 and 2022.

China’s post-Covid-19 recovery is well underway and in 2021, consumption and business investment could become the drivers of growth. Chinese economy is expected to grow by +8.2 percent in 2021 and +5.4 percent in 2022.

This economic environment should give the insurance industry more room to maneuver in the following years.

As welcome as economic tailwinds are, it will be by no means plain sailing as the Covid-19 crisis will cause long-term shifts in the insurance risk landscape.

One of the major changes brought on by the pandemic, set to shape the insurance industry in the long-run, are changes related to the altered behavior of economic actors—affecting equally the state, companies, and households. 

The systemic nature of Covid-19 has led the state to acknowledge its role of the ultimate risk taker, assuming the financial losses of the crisis for both the households and the companies. Responsibilities for financial risks resulting from an illness or job loss have, in the case of Covid-19, been taken on by the state. Emboldened by the success of these measures, the experience marks the return of the strong state, which uses its resources to actively shape the economy and society according to its ideas and concepts.

What this implies for the insurance industry is more intrusive regulation, asking about "value for money," i.e. whether products and services really meet customers' expectations and needs. The industry could and should see it as an opportunity to bring about change resulting in better products, stronger reputation, and higher customer centricity.

On a more fundamental level, Covid-19 has exposed the limits of (private) insurability when it comes to systemic risks. Other risks, such as natural catastrophes and cybercrime have the potential to also reach systemic dimensions. This means that the industry should use this as an opportunity to forge new private-public partnerships, which is something Allianz has been proposing. 

Going forward, strong growth is expected for the insurance industry on par with the global economic developments. Overall, global premiums are expected to rise by +5.1 percent. After the sharp decline in the previous year, the recovery in the Life segment (+5.7%) will be somewhat stronger than in the Property segment (+4.2%). 

"Post Covid-19 presents a unique opportunity to reverse slow-growth trend in the Life segment. Not because a turnaround in interest rates is imminent, certainly not, but because European households are sitting on a mountain of additional savings amounting to almost EUR 500bn. If the industry succeeds in translating its expertise in sustainable investing into attractive products for its customers, it should be able to secure a slice of this pie,” says Patricia Pelayo Romero, co-author of the report.

However, the road to recovery might be a bit bumpy: for some regions, like Asia, resuming their pre-crisis development in the early 2021 will happen almost seamlessly, while for other regions, like Western Europe, some additional time will be needed partly due to the handling of the Covid-19 crisis and the late effects of the pandemic. 

Nonetheless, the strong growth should continue in subsequent years, driven by the increased focus on sustainability and the further rise of the emerging markets. Globally, average growth of over 5 percent over the next ten years appears possible.