ALLIANZ INSURANCE REPORT 2020 SKYFALL
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© Stephen Davies - stock.adobe.com ALLIANZ INSURANCE REPORT 2020 SKYFALL 01 July 2020 02 Looking back: License to insure 10 Coronomics: Tomorrow never dies 16 Money? Penny? Outlook for the coming decade 22 No time to die: ESG as the next business frontier in insurance
Allianz Research
The global insurance industry entered 2020 in good shape: In 2019, premiums increa-
EXECUTIVE
sed by +4.4%, the strongest growth since 2015. The increase was driven by the life seg-
ment, where growth sharply increased over 2018 to +4.4% as China overcame its tem-
porary, regulatory-induced setback and mature markets finally came to grips with low
SUMMARY interest rates. P&C clocked the same rate of growth (+4.3%), down from +5.4% in 2018.
Global premium income totaled EUR3,906bn in 2019 (life: EUR2,399bn, P&C:
EUR1,507bn).
Then, Covid-19 hit the world economy like a meteorite. The sudden stop of economic
activity around the globe will batter insurance demand, too: Global premium income is
expected to shrink by -3.8% in 2020 (life: -4.4%, P&C: -2.9%), three times the pace wit-
nessed during the Global Financial Crisis. Compared to the pre-Covid-19 growth trend,
the pandemic will shave around EUR358bn from the global premium pool (life:
Michaela Grimm, Senior Economist EUR249bn, P&C: EUR109bn).
michaela.grimm@allianz.com In line with our U-shaped scenario for the world economy, premium growth will re-
bound in 2021 to +5.6% and total premium income should return to the pre-crisis level.
The losses against the trend, however, may never be recouped: although long-term
growth until 2030 may reach +4.4% (life: 4.4%, P&C: 4.5%), this will be slightly below
previous projections.
Covid-19 is seen as a game-changer but in insurance it may rather reinforce existing
Arne Holzhausen, Head of Wealth, Insurance trends, namely digitalization and the pivot to Asia, which will emerge faster and stron-
and Trend Research
ger from Covid-19. With growth of +8.1% p.a. until 2030, Asia (ex Japan) is expected to
arne.holzhausen@allianz.com
grow almost twice as fast as the global market. It will add a massive EUR1,277bn to
the global premium pool, twice as much as North America and four times as much as
Western Europe. Asia's rising middle class will increasingly play the role of the consu-
mer of last resort with huge pent-up demand, reflecting weak social security systems
and protection gaps in natural catastrophes, health, retirement and mortality. As a
consequence, the region’s share (without Japan) of the global premium pool will rise
Patricia Pelayo Romero, Expert, Insurance
patricia.pelayo-romero@allianz.com from 24.2% (2019) to 35.3% (2030).
Another trend that may “benefit” from Covid-19 is ESG. If the corona crisis taught the
world anything, it is the need for more resilience. Increasingly, ESG will be seen not only
as an indispensable tool to screen long-term risks to improve investment returns but
also as an insurance business-enabler. As more and more companies implement ESG
strategies, the demand for accompanying products and services is set to rise rapidly. A
Markus Zimmer, Senior Expert, ESG new era of “impact underwriting” emerges.
Markus.zimmer@allianz.com
2
01 July 2020
LOOKING BACK:
LICENSE TO INSURE
Golden year: 2019, the year before growth of +4.3% for P&C and +4.4% in for P&C the figure was EUR250 and for
Corona life. Growth dynamics, however, were life EUR398. When looking at the
The Covid-19 pandemic has had an different: P&C slowed down from +5.4% density (premium income per capita),
unprecedented effect on the global in 2018, reflecting the soft patch of the this statistic varies widely from market
economy and the insurance industry. world economy in the second half of to market, ranging from EUR6 in
Nonetheless, looking back at last year, the year, whereas life increased from Nigeria to EUR7,915 in Hong Kong
we had a normal year of growth in +2.8% as China overcame its temporary (which owes its crown partially to the
global insurance income. In 2019, gross regulatory-induced setback in 2018 fact of being an off-shore market for
written premiums for property-casualty (when the market shrank by -3.4%) rich Chinese). Insurance density is a
(P&C) and life (without health) came to and mature markets in North America good indicator for the maturity of the
EUR3,906bn or 5.4% of global GDP. and Europe finally came to grips with market. Additionally, insurance pene-
The year-on-year growth after adjus- low interest rates. The share of life tration (gross written premiums as a
ting for foreign exchange effects was premiums in the total market is around percentage of GDP) in 2019 shows the
a remarkable +4.4%, mainly due to a 61%. same story: Hong Kong as the largest
recovery in growth in China (+9.2%) spender, with about 17.8% of output
and the U.S. (+4.2%). Both lines of In 2019, the global per capita expendi- and Nigeria with 0.3% of GDP.
business grew in sync in 2019, clocking ture on life premiums was EUR648;
Figure 1: Gross Written Premium* growth, by region (in %)
Rest of the world 5.8
6.8
-0.5
Japan
-2.3
Asia ex Japan 9.7
6.8
Western Europe 1.7
4.3
North America 2.2
4.2
World 3.2
4.3
USA 2.0
4.2
China 13.1
9.2
-3.0 0.0 3.0 6.0 9.0 12.0 15.0
CAGR 2009-2019 2019
*The conversion into EUR is based on 2019 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices,
Thomson Reuters, Allianz Research
3
Allianz Research Figure 2 Top ten insurance markets by density and penetration
Gross Written Premiums per capita (in 2019 EUR)
18.0 17.8
15.0
12.0
9.9 9.8
8.9 8.6
9.0
7.4
6.8 6.4 6.1
6.0 5.2
3.0
0.0
HKG UK DEN FR SGP SWE CH US IRL NOR
Life P&C Total
Gross Written Premiums in % of GDP
7,915
8000
7000
6000
5,239
4,972 4,888
5000
4000 3,610 3,465 3,285 3,199
2,712
3000 2,345
2000
1000
0
HKG DEN CH SNG UK SWE FR KOR JP IT
Life P&C Total
*The conversion into EUR is based on 2019 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices,
Thomson Reuters, Allianz Research
For your eyes only – a lost decade World GDP (+4.7%) outpaced insu- Over the last decade, P&C was the
of growth rance premium growth (+3.2%) by a main growth driver (+4.2%). Generally,
wide margin. The result of this growth we can observe a more stable demand
The Global Financial Crisis (GFC) had disparity was an ever-widening cove- for P&C insurance as it moves in line
a significant impact on the insurance rage gap: Despite increasing global with economic activity and financial
industry, not only through the direct risks due to climate change, demo- stability. Thus, the relatively stable
exposure in financial markets, but also graphic changes, business interruption, growth environment of the last couple
in the change of growth trends across cyberattacks or geopolitical shifts, com- of years supported demand for P&C
developed markets. In the decade panies and individuals worldwide spent insurance.
preceding the crisis, the insurance a smaller proportion of their income in
market as a whole (P&C, +4.5%; and life coverage products, whether for natural
without health, +5.2%) grew more or catastrophes, cyber risks, healthcare or
less in line with GDP (+4.9%). However, retirement savings. This is partly due to
the trend in gross written premium lackluster and non-inclusive growth
growth never recovered from the blow: and partly due to risk attitudes.
4
Figure 3: Nominal global Gross Written Premium and GDP growth* (y/y, in %) 01 July 2020
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
GWP (Life and P&C) GDP
*Based on 2019 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, Thomson
Reuters, Allianz Research
On the other hand, the persistent design – flexible guarantees that allow events that might reshape their
low-yield environment has continued for higher returns. And savers have attitudes towards saving and spending
to drag down the demand for life realized that demographic change – the longer the situation drags on, the
insurance products in the market; in doesn’t stop and that their retirement more these changes will be anchored.
most cases it has deterred savers from goals can best be achieved with long-
engaging in long-term maturing assets. term investments. Consequently, the In the past decade, the regional
As a consequence, life premiums have life business rebounded in 2019, distribution of insurance markets has
grown by a meagre +2.7% annually almost doubling the previous year’s changed considerably echoing the rise
over the last ten years; life demand was growth rate (2019:+4.4%; 2018: +2.8%). of some Emerging Markets, first and
particularly weak in mature markets foremost China. Its world market share
such as Western Europe (+1.8%) and Thus, 2019 can serve as a reminder that more than doubled during this decade.
North America (+1.1%). However, the behavioral patterns are not set in stone. In contrast, the share of mature
longer extreme low interest rates per- The Covid-19 pandemic might further markets such as North America, Wes-
sisted, the more savers and insurers accelerate behavioral changes. tern Europe and Japan declined by
adjusted to the “new normal”: Insurers Risk awareness has certainly risen. about 12pp over the course of ten
have changed their investment beha- A generation of supersavers might be years. Western Europe, North America
vior – more alternative assets that earn in the making: Millennials have now and Asia (ex Japan) account for around
illiquidity premiums – and product lived through two significant economic 85% of global insurance premiums.
Figure 4: Total Gross Written Premiums, by region (based on 2019 EUR, in %)
6% 2019
9%
5%
12%
34% North America
12% 36% Western Europe
5% 2009
Asia ex Japan & China
9% China
Japan
12% rest of the world
33%
27%
*The conversion into EUR is based on 2019 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, 5
Thomson Reuters, Allianz Research
Allianz Research
Advanced economies region (68% of the total premium The P&C market in Western Europe
The aftermath of the GFC left deve- income or EUR722bn). This line of stagnated after the GFC and in 2019
loped markets with stagnant GDP business plays an important role in grew by +2.5%, only slightly faster than
growth, persistently low interest rates social security systems across Western the annual average since the GFC
and austerity measures impacting Europe. Nonetheless, there is an impor- (+1.6%). The German market grew by
social investment and public health tant heterogeneity in terms of insu- +3.1%, the British market clocked
systems. The upshot: household income rance penetration in Western Europe: growth of +2.3% and the French a
was more or less stagnant. But as it varies from a high of 7.8% in the UK meager +1.7%; growth in Italy was even
household expenditure is the largest and 6.9% in Denmark to lows of 1.0% in more subdued (+0.4%).
GDP expenditure component in the Greece and 1.4% in Austria. Moreover,
Euro area (54% of GDP), if this fails bancassurance strategies and legisla- Regarding insurance density (pre-
to grow, the economy and insurance tive changes often drive life insurance miums per capita, life and P&C combi-
expenditures follow suit. revenues. The Italian life market is the ned) and penetration (premiums as a
embodiment of this phenomenon: percentage of GDP, life and P&C
Therefore, life insurance penetration in over the last decade, growth rates combined), however, Germany lags
the region has dramatically declined, varied from +48.7% to -18.0%. Another behind the others. In 2019, insurance
from 5.6% back in 2007, just before the mature market that experienced a density stood at EUR2,031 in Germany
GFC, to 4.6% in 2019. (Penetration in similar level of volatility was Sweden, (against a regional average of
P&C remained more or less the same: where growth rates changed between EUR2,520) and penetration at 5.0%
2.2% vs 2.4% before the crisis). Against +18.5% to -11.9%. (against 6.8%). In neighboring France,
the backdrop of the demographic for example, people and companies
change, which leaves no doubt about The Western European life insurance spend EUR3,285 per year on insurance
the necessity of private provision, this market had a good year in terms of and penetration is almost twice as high
sharp decline is disturbing. Low interest growth in 2019 (+5.1%), way above the as in Germany (8.9%). The European
rates go a long way to explain the average growth p.a. of the last decade economic giant has yet to reach
subdued demand. (+ 1.8%). German life insurance grew by the coverage of its regional peers.
a whopping +8.6% while the other Euro-
Still, life insurance in Western Europe pean giants (i.e. Italy +2.7% and France
holds the largest market share in the +3.2%) exhibited more modest growth.
Figure 5: Gross Written Premium* growth, by region (in %)
2.1
Italy
4.2
2.7
Germany
2.3
2.7
France
1.9
7.6
UK
1.2
4.2
US
2.0
4.3
Western Europe
1.7
4.2
North America
2.2
0.0 2.0 4.0 6.0 8.0
2019 CAGR 2009-2019
*Based on 2019 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices,
Thomson Reuters, Allianz Research
6
01 July 2020
The U.S., the largest insurance market changed considerably: low productivity as Hong Kong is an off-shore insurance
worldwide (34% global market share), growth, pervasively low interest rates market for mainland China). This gap is
closed last year in a favorable state: and stricter regulation. Recovery was set to aggravate in the short-term as
overall insurance premium income rose slow to come, but every crisis brings the lockdowns due to Covid-19 were
by +4.2%. Although the performance opportunities: resilience, digitalization managed differently throughout Asia.
varied in both lines of business (life: and customer centricity became the Insurance market growth in Asia was
+5.1%; P&C: +3.3%), the total premium core values of the industry. Notwith- strong in 2019: Excluding Japan, premi-
income rose by EUR49bn. standing the curveball that the Covid- ums rose by +6.8%, the market recover-
19 pandemic has thrown in insurers’ ing from the meager growth of 2018
For another year, the U.S. cemented its way, the strategies the industry is hav- (+2.7%). Life premium income in Asia
status as the leading insurance market ing to implement to finally complete its (ex Japan) – accounting for 70% of the
in the world: At EUR1225bn, the U.S is digitalization process and evolve to fit total regional premium pool – grew by
the largest single market, followed by the new normal will pave the way for a +6.5% in 2019, after a mere +0.2% in
China, which stands behind at rebound and recovery that will not 2018 due to the slump in the Chinese
EUR455bn. The market share of the U.S. come tomorrow, but soon enough. market. P&C premiums, on the other
in P&C is a whopping 41%. The market hand, grew by +7.5%, slightly down
share in life insurance is a bit over a Emerging Markets from +9.0% in 2018.
quarter of global premium income Total premiums in Asia (ex Japan)
(25%) This reflects one of the peculiari- came to EUR947bn in 2019, of which It is no surprise that the largest growth
ties of the U.S. market: As far as the 48% were written in China. Ten years came from the countries with the less
spending structure goes, the distribu- ago, the size of the Chinese market developed insurance markets where
tion of expenditures between P&C and represented only 40% of the Japanese there is still room for improvement.
life is quite balanced, fluctuating at one in terms of premiums. Today, it is by Overall, the best performers in 2019
around 50% each. In most mature mar- far the largest in the region, around were Indonesia and Laos, which had
kets, life insurance products are clearly one third bigger than that of Japan, y-o-y growth of +15.4% and +14.8%,
dominating. which it surpassed in 2017. In compari- respectively. Vietnam and India also
son, India, the other potential heavy- clocked double-digit growth in 2019.
Reflecting the dismal growth over the weight in the region, saw total premium At the other end of the spectrum sit the
last decade (and a growing popula- income amount to EUR79bn in 2019, developed markets of the region such
tion), life insurance density in the U.S. roughly a sixth of the size of the Chi- as Singapore (+2.9%) and Taiwan
(total premiums per capita) has more nese market. This gap has increased (-1.6%). The Asian story post-crisis was
or less stagnated since the last crisis, over time: In 2009, the Indian market different from that in the West, one of
from EUR1,806 in 2008 to EUR1,848 in was one-fourth the size of the Chinese fast-growth and market development:
2019. In P&C, at the height of the GFC, one. The Chinese market is still the The average annual growth rate for the
the premiums per capita were at dragon market: fast development, a region stands at +9.7%.
EUR1,426; as of last year they were growing middle class, but still relatively
EUR1,873. As far as insurance penetra- low insurance density. The pent-up de- Talking about Latin America as a single
tion goes, the overall premium as a mand for insurance products will be an market would be as reckless as assum-
percentage of GDP has consistently asset for insurers trying to tap into the ing economic convergence in the Euro
declined over the last decade, from market. Coupled with technological area. However, there are numerous
7.5% in 2008 to 6.4% in 2019. This devel- progress – it is also the clear front- characteristics that bind countries to-
opment was mostly driven by falling runner in the application of AI and data gether. In 2019, there was a wave of
penetration in the life segment. analytics – China is the market to anti-government protests from Rio
watch. Grande to Fire Land, many of which
In Canada, overall insurance expendi- ended in violence. This social unrest
tures per capita were EUR2,424 last In Asia, there is clearly no homogeneity was due to extreme inequality and a
year. Gross written premiums grew by in the evolution of insurance markets. lack of social protection. The region has
+3.9% in 2019 (P&C: +3.8%; lfe: +3.5%). Countries like Laos, with deficient finan- been riddled by economic and public
Over the past decade, the annual post- cial infrastructure, barely reach an in- policy uncertainty for a few years now.
crisis growth in Canada has been +4.1% surance income of 0.4% of their GDP, As a response to the lack of social secu-
(CAGR life: +3.5%; P&C:+4.9). The Cana- while neighboring markets such as Chi- rity, the private market for protection
dian market represents roughly 6.9% of na and Hong Kong have an insurance promises a solution to the institutional
the region’s premium income at penetration of 3.7% and 17.8%, respec- shortcomings. In 2019, the countries in
EUR91bn. tively. The density gap is equally wide: our scope1 saw an increase in the total
premiums per capita per annum span insurance market of EUR7.5bn or
The bottom line: The GFC had a long- from a meager EUR9 in Laos and +10.4% y-o-y. This is the largest increase
lasting effect on the insurance market EUR58 in India to EUR4,888 in Singa- since 2015, but on par with the CAGR of
in North America and Europe as the pore to a whopping EUR7,915 in Hong the past decade of +10.3%.
environment it had to operate in Kong (although this figure is distorted
7
1
Argentina, Brazil, Chile, Colombia and Mexico
Allianz Research Figure 6: Gross Written Premium* growth, by region (in %)
2.9
Singapore
6.9
5.7
Hong Kong
10.2
11.2
India
9.9
-1.6
Taiwan
5.4
5.1
South Korea
6.2
9.2
China
13.1
6.8
Asia ex Japan
9.7
-2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0
2019 CAGR 2009-2019
*The conversion into EUR is based on 2019 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices,
Thomson Reuters, Allianz Research
The development of the region in terms One of the core issues and vulnerabili- Emerging Europe2 tells a similar story
of GWP per capita has been astound- ties in Latin America is informal labor. as there has been consistent growth in
ing in the last ten years. In 2009, the Nearly 140 million Latin Americans – premium volume in the past decade:
insurance density was barely EUR67 on about 55% of the working population – The overall regional market grew +8.6%
average in the region. As of 2019, it toil in the so-called “informal” economy. in 2019 and the overall CAGR was
almost increased threefold to reach Around 241 million have no access to +5.1% in the decade following the GFC.
EUR164 per capita. In terms of insur- social protection, according to the Both lines of business saw different
ance per GDP, ten years ago the region World Economic Forum. It is a growth development throughout the decade:
had 1.7% of premiums as a percentage market where most of the premium While the life business grew only +2.8%
of GDP. Last year, the penetration ratio expenditure (around 58%) goes into annually – reflecting the renationaliza-
was 2.1%. The three largest markets in P&C products. There is room for im- tion of private pensions in some
Latin America are Brazil (EUR25.5bn), provement for the pension systems in countries – P&C products experienced
Mexico (EUR22.5bn) and Chile the region; life insurance and retire- a rally of +6.3% annually.
(EUR11.5bn). ment products are high in demand in
countries like Mexico and Chile.
Figure 7: Gross Written Premium* growth, by region (in %)
9.3
Peru
11.2
11.6
Mexico
9.8
9.6
Colombia
10.0
7.3
Chile
8.9
4.5
Brazil
8.8
38.3
Argentina
31.5
10.4
Latin America
10.3
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0
2019 CAGR 2009-2019
*The conversion into EUR is based on 2019 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices,
Thomson Reuters, Allianz Research
8 2
Bulgaria, Croatia, Czech Republic, Hungary, Kazakhstan, Poland, Romania, Russia, Slovakia, Turkey and Ukraine.
01 July 2020
In terms of gross written premium vol- The countries where we find the highest Bulgaria, the Czech Republic and Po-
ume, the largest players in the region ratio of premiums as a percentage of land, all with 1.9% of GDP, and Croatia
are Russia (EUR20.7bn), Poland GDP are Slovakia (1.3%), Hungary with a ratio of 1.7%. As the region
(EUR14.1bn), Turkey (EUR9.2bn) and (1.1%), the Czech Republic (1.0%) and entered 2020, it was well-positioned to
the Czech Republic (EUR6.4bn). How- Poland (0.8%). grow in line with GDP. However, Covid-
ever, when looking at the market devel- 19 spread to every corner of the planet
opment indicators we find that Russia is In Emerging Europe, there is much high- and will impact the development of the
nowhere near the top. In the life mar- er expenditure on P&C products Emerging Markets for the foreseeable
ket, the highest density is in Slovakia (EUR44.5bn) than in life insurance future.
(EUR225 per capita), the Czech Repub- products (EUR19.4bn). We observe
lic (EUR212 per capita) and Poland higher levels of market maturity in P&C
(EUR103 per capita), while bigger mar- in the region. Density is the highest in
kets like Russia (EUR51 per capita) and the Czech Republic (EUR388 per capi-
Turkey (EUR18 per capita) lag behind. ta), Poland (EUR269 per capita), and
In terms of life penetration, the more Croatia and Slovakia (both with
developed countries have seen their EUR222 per capita). In terms of pene-
ratios fall slightly for the past decade. tration, the ratios are similarly higher in
Figure 8: Gross Written Premium* growth, by region (in %)
1.4
Slovakia
4.6
2.1
Hungary
10.6
1.5
Czech Republic
4.2
16.9
Turkey
20.8
0.4
Poland
7.4
11.1
Russia
6.0
5.1
Emerging Europe
8.6
0.0 5.0 10.0 15.0 20.0
CAGR 2009-2019 2019
*The conversion into EUR is based on 2019 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices,
Thomson Reuters, Allianz Research
9
Allianz Research
CORONOMICS:
TOMORROW NEVER DIES
Like a meteorite: The economic worst recession since WWII: we expect tionism will be a key feature of the life
environment growth of -4.7% in 2020, more than after Covid-19 and may jeopardize the
The Covid-19 outbreak will send the twice as bad as the 2009 GFC. The recovery. A desire for industrial autono-
global economy into a sharp recession trough in activity is now expected to my (not least in Europe and the U.S.)
in 2020. Since January, the impact of stand between -10% and -20% q/q and hidden subsidies for re-shifting pro-
the outbreak has unfolded from a in Q2 depending on the strictness of duction back home signal a potential
China-centered supply shock, which lockdowns across countries. This follows trend of the shortening of supply
sent shockwaves across global trade an already sharp recession in Q1 (from chains, more investment protection and
and disrupted supply chains, to an -2.5% to -8% q/q). thus a costly rebound.
unraveling of financial markets as in-
vestors realized the unavoidability of a Global trade losses could total Despite unprecedented support, insol-
recession, to a violent demand shock USD3.5tn in 2020. We expect two quar- vencies are set to increase in 2020.
hurting consumption and investment ters of recession in trade in goods and Looking at historical sensitivity to the
as governments put the world on an services (Q1 and Q2), which will bring economic cycle and government inter-
unprecedented pause to flatten the the annual volume contraction to -15% ventions to support corporates (tax de-
contagion curve. in 2020. In value terms, plummeting ferrals, state loans and guarantees)
commodity prices and a stronger USD and avoid top insolvencies and their
In fact, full-fledged lockdowns for more will weigh on prices. We expect global domino effects, we expect global insol-
than half of the global population and trade in value to fall by -20%. However, vencies to increase by +20% in 2020.
GDP hit the world like a meteorite, a smooth return to the status quo ante This fourth consecutive year of rising
pushing the global economy into its is not on the cards: Increasing protec- insolvencies would result from a +25%
Table 1: Global GDP growth forecasts
2017 2018 2019 2020 2021
World GDP growth 3.3 3.1 2.5 -4.7 4.8
United States 2.4 2.9 2.3 -5.3 3.7
Latin America 1.0 1.0 0.1 -6.8 3.1
Brazil 1.3 1.3 1.1 -7.0 3.0
United Kingdom 1.8 1.3 1.4 -13.3 5.0
Eurozone members 2.7 1.9 1.3 -9.0 6.0
Germany 2.8 1.5 0.6 -7.0 4.5
France 2.4 1.8 1.5 -10.8 7.4
Italy 1.7 0.7 0.3 -11.2 6.6
Spain 2.9 2.4 2.0 -11.0 7.0
Russia 1.8 2.5 1.3 -5.2 3.0
Turkey 7.5 2.8 0.9 -4.7 4.2
Asia-Pacific 5.2 4.7 4.2 -1.3 5.9
China 6.9 6.7 6.1 1.5 7.6
Japan 2.2 0.3 0.7 -5.7 2.2
India 7.0 6.1 4.7 -3.6 7.5
Middle East 1.4 0.9 0.3 -6.3 2.2
Saudi Arabia -0.7 2.4 0.3 -4.0 2.0
Africa 3.1 2.7 1.9 -3.1 4.0
South Africa 1.4 0.8 0.3 -7.8 5.4
* Weights in glob al GDP at market price, 2019
NB: fiscal year for India
10 Source: Allianz Research.01 July 2020
increase in the U.S., a +15% rise in China start. What is important to understand fully recouped by year-end. As a result,
and a +19% surge in Europe. is that managing the reproduction rate U.S. equity markets could post a 10-20%
of the virus effectively (R0) will mean yearly performance for 2020 and grad-
Up to one quarter of the jobs under most economies will function at 70% to ually start recovering to previous levels
partial unemployment are at risk of 90% of their potential for two-three within 2021. Similarly, we expect Euro-
being lost jobs. In the Eurozone, where quarters, with transport, travel, retail pean equity markets to follow the exact
more than 70 million people are likely and hospitality on Covid-19 mode for same path but with a strongly negative
to benefit from partial unemployment longer. As a result, activity in the manu- performance for 2020.
schemes, the very gradual reopening of facturing and construction sectors may
economies will mean fixed costs would pick up faster than in services. Lessons On the other hand, U.S. long-term bond
need to be reduced by companies, learned from China show us that one yields are expected to finish 2020 at
notably those in sectors where de- month after the number of domestic around 1.0%. Global long-term sover-
confinement is very slow (hotels and Covid-19 infections dropped close to eign markets have calmed down after
accommodation, travel, retail). Conse- zero, production activities are still regis- several weeks of erratic behavior.
quently, many on partial unemploy- tering at 80%-85% of their usual pre- The mix of bad and good news both
ment could become unemployed by crisis levels, while consumer spending from a pandemic and fiscal and mone-
year-end, pushing the Eurozone unem- on durable goods remains at c.65% of tary perspective has led markets to
ployment rate up by +2pp to 9.5% in normal levels. Globally, a return to a perpetual hunt for their anchor or
2020. The U.S. job market, on the other business as usual is not on the table fundamental forward-looking value,
hand, is highly flexible. After skyrocket- before mid-2021 (+4.8% GDP growth in which they seem to have now found.
ing jobless claims in April, we estimate 2021) and will be dependent on a Beyond 2020, we expect long-term U.S.
the unemployment rate to reach 9.4% vaccine being in place. yields to converge to pre Covid-19
on average in 2020. fair-value levels (1.4%) by the end of
Against this backdrop of a more gradu- 2021. Similarly, 10y Bund yields are
Substantial excitement about exiting al recovery, markets seem rather to be expected to remain trading around
from the Covid-19 lockdowns is over- pricing in a quick V-shaped recovery. -0.5%. Mirroring the U.S., we expect
rated. Although major economies have The main reason for this cognitive gap long-term German yields to converge
started reopening, de-confinement is might be the unshakable belief in over- towards -0.3% by the end of 2021.
set to proceed in a gradual manner, activist central banks. But given the
which can be divided in four different risks involved – in particular the likeli-
stages: from full lockdown to gradual hood of a second outbreak in autumn
national reopening, to gradual interna- or winter – we still believe that the
tional reopening and finally a full re- ground lost since February will not be
11
Photo by Moritz Mentges on UnsplashAllianz Research
A view to a crater: Covid-19 and crease in premiums of +4.4% in 2020), ey and simply keep it in their bank
insurance demand lost premiums amount to EUR109bn at accounts or stash it away under the
The slowdown in economic activity and the global level. mattress. It might be only in future
the slump in equity markets will certain- years that the insurance industry may
ly weigh on top-line growth in the insur- The life market has become much more benefit from this cash hoarding.
ance industry. On the other hand, insur- volatile in recent times as single premi-
ers might benefit from greater risk ums play an increasing role. Double- Overall, global life premiums are set to
awareness. That was, at least, the expe- digit swings in both directions – even for decline by -4.4% in 2020, shaving off
rience of SARS: In its aftermath, de- mature markets like France and Italy – around EUR106bn from the 2019 glob-
mand for health and care insurance in are not uncommon. Moreover, besides al insurance premium pool. Similarly to
Asia grew by double digits. But SARS economic activity (employment and the situation in the P&C segment,
also showed that this boost is rather wage growth, for example) other fac- markets in Europe and North America
short-lived; moreover, even if the will- tors, too, influence demand: legislation will suffer the most. However, in life,
ingness to buy more insurance cover such as tax incentives, strategy such as even Asia (ex Japan) might not be able
exists, it might not be matched by the product design and distribution (banc- to avoid a premium recession, as premi-
ability to do so. For 2020, without assurance), and last but not least ums are set to decline by -2.0%.
doubt, the negative effects will prevail capital markets – the performance of Compared with our pre-Covid-19 base
(with only a few exceptions like health many “modern” life products is closely case (assuming an healthy increase
or life protection). related to capital market movements. in premiums of 6.2% in 2020), lost pre-
Unit-linked products, for example, will miums amount to EUR249bn.
In the longer run, the industry will come be battered: Not only new business will
under increasing pressure – from come to an abrupt halt, but large out-
clients, policymakers and regulators – flows can also be expected.
to come up with more comprehensive
and simpler solutions. This might even In times of crisis, however, households
compromise their ability to price risk become more risk-averse and may shy
properly. Hence, a hardening market away from consuming or investing,
because of the crisis cannot be taken building up precautionary savings
for granted. instead. In 2009, for example, savings in
the EU28 jumped by EUR100bn. With
In the P&C business, the link between Covid-19, this behavior might be even
economic activity and insurance de- more pronounced as lockdowns made
mand is particularly close. Therefore, consumption in many areas – from eat-
we expect all lines of businesses to see ing out to travelling – literally impossi-
lower premium income in 2020 as new ble. Private consumption is set to drop
business is set to decrease markedly. like a stone, by an estimated -35%
Even in lines where appetite for risk on average during the lockdowns.
cover might increase – in cyber, for ex- Although household income, too, is set
ample, given the increase in cyber- to decline (because of rising unemploy-
attacks – the sheer lack of money ment), the blow is widely mitigated by
(or the need to build internal capital government programs (“Kurzarbeit”).
buffers for highly uncertain times) Total household income may thus de-
might deter many prospective clients cline by “only” -8% to -16%. The upshot:
from increasing insurance cover. Saving rates could increase by around
+6pp above pre-crisis levels in 2020;
All in all, global P&C premiums are set this means about EUR400bn, or 3% of
to decline by -2.9% in 2020, shaving off GDP in the EU28. This is by no means a
around EUR44bn from the 2019 global European phenomenon. Even in the
insurance premium pool. Although the normally spendthrift U.S., the personal
coronavirus spared no region, mature savings rate hit a historic 33% in April
markets (with their strict lockdowns) will 2020.
be the hardest hit, with premium in-
come falling by around -5% and -4.5% Where will these additional savings end
in North America and Western Europe, up? In calmer times, capital markets
respectively. Most Emerging Markets, (investment funds) and modern insur-
on the other hand, will manage to in- ance products may benefit, as recent
crease their premium pools, albeit by experience in, say, Germany has shown.
very low rates. Compared with our pre- In turbulent times, however, households
Covid-19 base case (assuming an in- may shy away from investing their mon-
1201 July 2020
Table 2: Impact of Covid-19 on GWP by different lines of businesses
Line of business Trigger Expected impact (2020)
Life unit linked Equity market slumps lead to strongly negative
sudden stop in new business, large
outflows
Life traditional Low yields deter savers; slightly negative
partially offset by flight to safety?
Life protection Higher risk awareness slightly positive
(memento mori)
Health Higher risk awareness slightly positive
Motor New business collapsed due to negative
lockdowns and reduced frequen-
cies will weigh on pricing (rebates);
partially offset by catch-up effects
in H2
Fire and property Slowdown in investments and negative
housing starts
Business interruption Rising demand for pandemic risks – slightly negative
but reputational issues
Travel Travel collapsed during lockdowns strongly negative
and will only gradually recover
Credit Declining trade and higher risk pro- negative
files; (partially) offset by govern-
ment programs
Cyber Higher risk awareness but compa- slightly negative
nies’ ability to buy risk cover nega-
tively affected by recession
Liability, D&O Higher risk awareness but compa- slightly negative
nies’ ability to buy risk cover nega-
tively affected by recession
Source: Allianz Research
Photo by Matthieu Gouiffes on Unsplash
13Allianz Research
Corona topping Katrina: Covid-19 inspired losses
The direct loss impact of Covid-19 differs from one line of business to another. Some lines might even temporarily benefit
as the lockdowns lowered activity (e.g. traffic). But the relief on the motor side might be short-lived and offset on the premium
side by rebates and cash-backs.
So overall, the effect of Covid-19 will be clearly negative. Visibility on claims, however, is still low for three reasons: First, there is
no precedent for such a sudden stop of economic activity on a global scale; the monetary and fiscal countermeasures are also
unprecedented. Hence, how businesses and people react is hardly predictable. Second, a wave of litigation can be expected
as some companies (and their lawyers) will try to find ways to get around exclusions for communicable diseases – in some juris-
dictions with support by policymakers – and also to find fault in how companies have handled the pandemic (e.g. hotels,
airlines or essential sectors). Third, in some lines (e.g. travel, business closure for restaurants) insurance will show goodwill
(or may be coerced to do so…) and make (partial) payments.
Generally, Covid-19 cannot be compared with a property-related catastrophe such as a hurricane or earthquake, which strikes
once and where losses and estimates are available within days. Losses from Covid-19 will evolve over a much longer time
horizon. True, there are also immediate losses from coverages directly triggered by the pandemic such as health, travel and
event cancellation. But the bigger driver of losses may be litigation (coverage interpretation, finding fault) and credit-exposure
(bankruptcies). Thus, it is not surprising that estimates of losses differ widely. Lloyd’s of London, for example, estimates that
global underwriting losses will amount to USD107bn in 2020 alone3.
To add insult to injury, Covid-19 does not only impact the liability side of the insurance business but the asset side as well.
Falling interest rates, widening spreads and deteriorating stock markets weigh on investment income as well as on the balance
sheet of insurers. A surge in downgrades and corporate defaults will make impairments necessary. Given the volatility of
markets and the huge fiscal rescue and stimulus packages, the final losses for insurers are almost impossible to predict.
Again, Lloyd’s of London tries to give a ballpark figure: global losses in investment portfolios might total USD96bn (2020) 4.
Pandemic insurance: The case for a Ex-ante risk protection schemes, be it necessary infrastructure, processes and
European solution against pandemics, natural catastro- knowhow to check the claims (to detect
A pandemic is essentially uninsurable. phes or terrorism are instrumental in fraud) and make pay-outs fast and effi-
By definition, it hits all households and ensuring that all participants retain skin cient.
businesses at the same time. There is no in the game and thus have a strong
diversification over space or time. self-interest in taking preventive and Fortunately, successful examples of
Covid-19 is a case in point: how could preparatory measures. There is a long private-public-partnerships in closing
an economic crisis which is likely to list of measures businesses should take risk coverage gaps exists. In the U.S.,
shave off USD9 trillion from this year’s to strengthen their resilience against TRIA (the Terrorism Risk Insurance Act)
global output be insured privately? future outbreaks: from stronger was passed in the wake of 9/11 to
That’s why the insurance industry, balance sheets and more robust, diver- kickstart a private insurance market for
aware of the possibly devastating sified supply chains to broader succes- terrorism. Previously the demand for
impact of a pandemic, excluded com- sion planning; from infrastructure to terrorism coverage had been extremely
municable diseases from most of its enable remote working and regular limited and insurers would generally
standard policies. health checks of employees to new neither charge for nor exclude it. After
standards of hygiene. True, these the September 11 attacks resulted in
The story, however, should not end measures come with additional costs, a $40 billion insured loss, reinsurers
here. Societies – with only a few excep- while the next pandemic might only quickly pulled out of terrorism cover-
tions in East Asia – were woefully ill- happen in years or decades. Therefore, age, leaving primary insurers with no
prepared for the advent of Covid-19. it is of utmost importance to have the other choice than to stop offering it.
It is now becoming increasingly clear right incentives in place by harnessing This left businesses, with a newfound
that in the years since the SARS epi- the market dynamics of private insur- appetite for terrorism coverage,
demic nothing has been done to estab- ance: pandemic insurance with risk- exposed and vulnerable to future
lish effective pandemic risk protection. adjusted prices would go a long way to attacks. .
This time, lessons should be learnt. First promote risk-mitigation strategies and
and foremost, societies must boost their nudge businesses to lower their risks.
economic resilience. Insurance can and Another advantage would be that
should play a role here. private insurers could provide the
14 3
https://www.lloyds.com/news-and-risk-insight/press-releases/2020/05/covid19-will-see-historic-losses-across-the-global-insurance-industry
4
ibid.01 July 2020
In response, the Terrorism Risk Insu- entering into any other insurance con- pandemic. This guarantee could be
rance Act was signed into law by Presi- tract. The client buys insurance from an backed by the EU budget, similarly to
dent George W. Bush in November of insurance provider, pays the premiums the arrangement of the Macron-Merkel
2002. and, in the event of a claim, gets paid plan for the Covid-19 recovery fund.
out by the insurer. The insurer is then
The TRIA program provides a govern- later reimbursed by Flood Re. Many questions remain open. How
ment backstop. Participating insurers much capital would such a re-insurance
are encouraged to price coverage Flood Re has been very successful in vehicle need? How much should
accurately through insurer deductibles increasing the availability of flood insurers be charged for passing pande-
($200 million as of 2020). The pro- insurance. While only 9% of households mic risk to Pandemus? How big does
gram’s annual cap amounts to $100 that had made previous flood claims the public guarantee need to be?
billion, after which no further payments were able to attain quotes from two or Should capital markets play a role via
will be made and insurers, having met more insurers before the inception of cat-bonds? How should pay-outs be
their deductibles, are relieved of any Flood Re, afterwards that number rock- managed? The last question seems
excess liability. eted to 100%. This matters as Flood Re particularly thorny, given the highly
has the clear vision to reduce risk of varying degree of pandemic impact
So far, TRIA has proven successful at future floods by incentivizing preventa- and loss profiles. Parametric solutions
raising what is now basically a self- tive measures. might be an option i.e. linking the trig-
sufficient and profitable market in ger for pay-outs, for example, to the
terrorism insurance. Under protection of Both examples are suitable to be ad- number of cases or deaths per millions
the backstop, insurers were embolde- justed to pandemic insurance. There is, of inhabitants in a certain region – pro-
ned to underwrite terrorism policies however, a strong reason to opt for a vided these statistics are reliable and
while the insurer deductibles ensured re-insurance solution: the European harmonized. The volume of pay-outs,
adequate research and sustainable dimension. If Covid-19 has taught us on the other hand, could be pre-
pricing models were encouraged. anything, it is that no country will be determined lump sums, staggered by
spared by a pandemic. So it is better to business size. Measuring losses on a
Another template would be Flood Re in set-up a joint solution in the first place, more granular level might render the
the UK. Insurance companies do not avoiding haggling over European soli- scheme unduly complicated.
like to underwrite flood coverage darity afterwards.
because of the high level of adverse Given these difficulties, it is understan-
selection. Flood Re is a reinsurance The newly created re-insurance vehicle dable that pandemic risk insurance
scheme where insurance companies – let’s call it “Pandemus” – could be schemes are discussed first and fore-
and the UK government work together established as Societas Europaea (SE), most at the national level; that way,
in order to offer coverage the market responsible for all EU members and they might be easier (and faster) to
would otherwise be hesitant to provide funded by all European (re)insurers and implement. But the danger remains
while simultaneously keeping pre- member states. To be credible, how- that Europe will end up with a
miums low. Insurers contribute a combi- ever, Pandemus would need a public hotchpotch of solutions that cannot be
ned £180 million a year to Flood Re guarantee – up to a certain limit, be- easily integrated and may only deepen
and in turn can pass claims on for a cause even the EU cannot indemnify all differences in the reaction to future
fixed sum. For the client, it is like businesses for all losses caused by a pandemics.
Covid-19 and social security
While the impact of Covid-19 on private insurance is quite dramatic, social security systems have not been spared either.
Public pension schemes are a case in point.
In most countries, the regular pension adjustment depends on the development of the average wage level. With unemploy-
ment and short-time work increasing during the crisis, the average wage level in 2020 is probably going to be lower than last
year´s. Thus, in the best case, pensions are not going to increase in the next year. In countries where there is no indexation, this
will leave retirees with real purchasing power losses. Future retirees might also be affected by this sudden drop of the average
wage level, in case their future pension is linked to the relation of their own income to the average income level. Thus, if no cor-
rective measures are applied, in the U.S. “a middle-income worker born in 1960 could have his annual Social Security benefits
in retirement reduced by around 13%, with losses over the retirement period in excess of $70,000” due to this effect, for
example5.
The pandemic also affects the tax and contribution payers. In order to meet the pension obligations, in the short -term, higher
tax subsidies will be necessary to cover the declines in contribution income of the national social security agencies due to
higher unemployment rates and short-time work. However, if labor markets do not recover in the short- to mid-term, increasing
contribution rates will be inevitable.
5
Biggs, Andrew G. (2020), p. 1, assumed a 15% decline in the Social Security Administration's measure of economy wide average wages in 2020. 15Allianz Research
MONEY? PENNY?
OUTLOOK FOR THE COMING DECADE
The changes that the Covid-19 pande- China – and states may wish to reduce not mean that the industry is off the
mic has brought on to the insurance their foreign reliance on “strategic” hook. Covid-19 will lead to a new regu-
industry is nothing short of game- goods (from drugs to batteries) while latory and supervisory sentiment, with a
changing. There were immediate issues companies may want to shorten their renewed focus on systemic risk – resul-
that insurers had to tackle when the supply chains – resilience trumps effi- ting in more stress testing and reporting
pandemic spread to every corner of the ciency. For insurance, these develop- – and market conduct – leading to a
world. The multifaceted role of em- ments are ambivalent. On the one more consumer-friendly regulation, as
ployers, claim payers, asset managers hand, many business lines (e.g. marine, a reaction to recent disputes about
and business meant that insurers had transport, credit) thrived in the past on clauses and claims regulation as well
to prioritize, rebalance and move on. globalization, on the other hand, a new as premium refunds and discounts.
As employers, the most important focus on resilience, on-shoring projects There is the undeniable risk that new
measure was to make sure that remote and more infrastructure investments regulations in that field might even
work was made available for every em- creates new business opportunities. compromise the industry’s ability for
ployee. As claim payers, new risks emer- policy exclusions and pricing.
ged, and refining underwriting prac- More challenging might be another
tices became of the utmost importance. trend: the relation between business The upshot: The years after the pande-
The asset manager role is still tricky as and the state is set to change, with a mic will be as challenging as the years
this is the most direct channel in which more assertive and interventionist role after the GFC. This is reflected in our
Covid-19 will potentially affect insurers. of the latter. This will also have reper- long-term forecasts. With growth of
The irrationality of the capital markets cussions for insurance, not least in regu- +4.4% p.a. until 2030, global insurance
makes it even more challenging for lation. So far, the regulatory framework markets will very likely trail behind
insurers. The only thing that can be ta- for insurance worked quite well during economic activity for another decade.
ken for granted is that yields will stay the crisis. As a consequence, insurance This pace, however, is a good 1pp fas-
very low (or even negative in some lo- regulators have been far less accom- ter than in the previous decade as the
cations) for the foreseeable future. modating than their peers in banking industry has become battle-tested and
who, for example, lowered capital some silver linings are also visible. But
What will the world look like after Co- requirements (to make credit readily before discussing them, let’s turn to the
vid-19? Some trends have already available). In insurance, regulatory re- outlook for the different regions and
become apparent. Globalization will lief came mainly in the form of reduced markets.
change: global rivalries may increase – operational burdens, such as data col-
first and foremost between the U.S. and lection and consultations. But that does
16 Photo by Lei Jiang on Unsplash01 July 2020
You only live twice – advanced econo- globe. Underwriting excellence is of the (2019: EUR96bn).
mies navigating the crisis utmost importance to maintain loss
The U.S. will continue to be the uncon- ratios stable as increasing demand and Life insurance expenditure in Europe
tended market leader for the next de- increasing risk exert opposite forces. was EUR1,712 per capita in 2019. We
cade. Our long-term prospects look a find heterogeneity in the region as the
little brighter than the current situation. The emerging risks arising in the next expenditure is much higher in Ireland
Insurance markets should recover over years to look out for are: social inflation, (EUR3,697), Denmark (EUR3,663), and
the long-run. We expect the life market disruptive tech, pricing and product line Switzerland (EUR3,136) while in Austria
in the U.S. to reach EUR855bn by 2030, profit, legislative and regulatory it is EUR630 and in Greece EUR189.
increasing its volume by EUR247bn in changes and the persistently low inte- We expect the density to change only
the next decade with a CAGR of +3.1%. rest rates. Along with these we can also marginally in the next decade as the
We estimate a slight deterioration of list emerging risks concerning the envi- largest players will be in the
the life insurance penetration from 3.2% ronment: climate-related disasters, Scandi-navian and Anglo markets
in 2019 to 3.0% in 2030. Despite suffe- food safety and food security. to drive the regional density to
ring a deeper downturn in the P&C lines EUR2,146 (Denmark: EUR4,695; Swe-
in the U.S., we expect the market to In Western Europe we foresee negative den: EUR4,406; and Ireland: EUR4,382).
grow by EUR313bn over the next ten growth in 2020 for both lines of busi-
years with a CAGR of +3.3% to reach an ness at -4.5% for P&C and -4.8% for life In terms of gross written premium as a
estimated EUR930bn in 2030. Thus, the insurance. We expect, however, to ob- percentage of GDP, the regional ave-
penetration in P&C will have slightly serve a recovery of sorts in 2021 at rage is 4.6%. We expect the insurance
improved from 3.2% in 2019 to 3.3% in +3.4% for P&C and +3.0% for life insu- penetration to slightly worsen over the
2030. rance. Over the next decade, we will next ten years to 4.4%. The big players
observe positive CAGRs for both lines of are the UK at 7.8%, Denmark with 6.9%
There will be increased demand in business at +2.2% for life insurance and and France at 6.0%. We also find some
some lines of commercial and personal +2.1% for P&C. We foresee Germany to regional differences as penetration is
business due to the Covid-19 pandemic. overtake France as the biggest player lower in Greece (1.0%), and the Nether-
We will observe an increased demand in the region for P&C in 2030 at lands (1.6%). We expect the penetra-
in professional liability, especially in the EUR91bn and EUR90bn, respectively. In tion to deteriorate in the UK to 6.9% as
cyber security and medical malpractice the realm of life insurance, France will well as in Switzerland, where we expect
products. Political risk is another pro- continue to be the European market it to go from 4.3% in 2019 to 3.5%
duct that is expected to rise in the leader in terms of premium volume at in 2030.
specialty lines as uncertainty continues EUR185bn (2019: EUR145bn), followed
in developing countries and across the by Germany at EUR118bn in 2030
Figure 9: Gross Written Premium* growth, by region (in %)
4.4
World 4.5
4.4
3.2
North America 3.8
3.5
2.2
Western Europe 2.1
2.2
8.1
Asia ex Japan 8.0
8.1
0.9
Japan 1.5
1.1
5.8
rest of the world 5.4
5.6
3.1
USA 3.8
3.5
9.8
China 8.8
9.5
0.0 2.0 4.0 6.0 8.0 10.0 12.0
CAGR 2020-2030 Life CAGR 2020-2030 P&C CAGR 2020-2030 Total
*Based on 2019 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices,
Thomson Reuters, Allianz Research
17Allianz Research
Insurance and tech—shaken not stirred
For the better part of the last decade, the insurance industry had been trying to play catch up with technology. However, just as
Covid-19 spread across the globe, insurers were forced to adopt digital measures that would have under normal cir-
cumstances taken years to implement. While there are several reasons why insurance has been deemed a laggard – mainly
the dependence on legacy systems – the current situation and incumbent technological innovations will push the insurance
industry to speed up the adoption of new tech across their ecosystems.
The undisputable quick win in technological adoption for insurers is client communications. The pandemic bolstered the popu-
larity of online platforms and remote interaction where the applications range from advertisement to real-time quoting. Big
data can help to target potential customers, while chatbots can be used to improve customer satisfaction by redirecting them
to the relevant department they wish to contact. Text and image recognition and extended reality can help eliminate human
interaction and promote automation and the elimination of human error when filing a claim. Another scalable technology is
voice and speech recognition, which can be used for authentication purposes or data mining.
Through the increase in communication channels, insurers can profit from the data access and create new analytical tools for
pricing and underwriting. One of the most popular applications is machine learning, which is currently used for customer ser-
vice, fraud detection and increased operational efficiency. There are no bad risks just bad pricing and algorithms are used to
support classification risks and to calculate more accurate predictive pricing models that ultimately drive lower loss ratios. Ma-
chine learning-powered tools can also be used to create insights from massive volumes of health data to deliver lower costs, a
higher quality of customer care, and fraud detection. Other scalable technologies that will help drive this change are 5G net-
works and the Internet of Things (IoT) to help share and monitor data. Another prominent field where new technology can play
out is policy management claims handling. Here we can expect an increase of the use of smart contracts, blockchain and dis-
tributive ledger technologies, automation and predictive analysis. The process will change from policy inception to first notice
of loss to algorithms that detonate digital payments.
Lastly, the increased use of analytics, automation and risk management will help the industry transform into a more customer -
centric business. It will become increasingly important to create strategic alliances and partnerships to move away from tech-
nology late adopters into innovators. The surge of innovation labs and transition from legacy systems into new ways of
working will become the new normal for insurance. Business strategies coming out of the crisis will make the sector look funda-
mentally different. With the pandemic we can expect a reshuffling of priorities in technology spending in insurance. Not only at
the product level or at individual components of the value chain, but across the entire value chain. Building in-house and deve-
loping digital capabilities with alliances and partnerships are going to be the way forward. While this crisis has brought ma ny
challenges, it also provided opportunities to come out of it stronger, more efficient and digitally enabled.
Figure 10: Gross Written Premium* growth, by region (in EUR)
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000
2019
China
North America
Asia ex JP & CHN
Western Europe
Latin America
Eastern Europe
Japan
Middle East
& Africa
Oceania
2030
*The conversion into EUR is based on 2019 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices,
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