Two of the biggest recent trends in global insurance are premium growth in emerging markets and the rising importance of technology across the supply chain. The latter has come to be referred to as InsurTech, which heralds both threats and opportunities for incumbents and newcomers alike. While technological solutions are being applied along the length of the insurance supply chain in advanced markets, their focus in emerging markets has primarily been on driving premium growth. Stronger growth in emerging and developing economies since 2000 has given rise to a swelling middle class. Meanwhile, many lower- and some middle-income countries have managed to largely skip the mass rollout of fixed-line telephony as the prevalence of low-cost mobile telephony has seen a surge in mobile phone penetration rates not too dissimilar to those in advanced economies. This has facilitated financial inclusion, allowing tens of millions to access formal financial services for the first time. Kenya’s mobile money system, M-Pesa, is a notable example of this. In fact, Kenya’s mobile payment system is on a par with, or even ahead of, those in many advanced economies. The sophistication and availability of digital financial services has greatly expanded, from e-payments to microcredits and, more recently, insurance products.
Insurtech
According to a report titled “Technology and innovation in the insurance sector” that was published in 2017 by the OECD, InsurTech is used to describe “ new technologies with the potential to bring innovation to the insurance sector and impact the regulatory practices of insurance markets”. InsurTech, as compared to financial technology, is more often related to service improvements for individuals, as opposed to businesses. Sector participants sometimes use the term more broadly to encompass the application of digital technology to all stages of the insurance supply chain.
Penetration
The share of insurance premiums in GDP is closely and positively correlated with GDP per capita, and varies significantly across regions. According to the “World insurance in 2017: solid, but mature life markets weigh on growth” report by Sigma, Swiss Re’s research and analysis arm, North America and Europe had the highest insurance penetration rates that year, measured as premiums as a percentage of GDP, with 7.1% and 6.5% of GDP, respectively. Asia, which includes the Middle East and Oceania, tied in third place with 5.6%. While Taiwan (21.3%), Hong Kong (17.9%), South Korea (11.6%), Japan (8.6%) and Singapore (8.2%) recorded rates above those seen in North America, about half of the countries in Asia have rates less than 3% of GDP, with large, populous economies such as Pakistan and Bangladesh registering rates under 1%. Latin America, the Caribbean and Africa hold the most potential for catch-up growth, with penetration rates of 3.06% and 2.96%, respectively.
Premium Growth
The pattern in premium growth, however, is somewhat different, reflecting both stronger growth in emerging markets and the catch-up potential represented by relatively low penetration rates. In 2017 premiums were flat in North America, and contracted in Europe and Oceania by 0.5% and 6.2%, respectively. Meanwhile, premium growth in Asia registered 5.7%, but differed markedly between its sub-segments. Advanced Asian economies contracted by 1.1%, while emerging Asian markets and the Middle East and Central Asia region grew by 14.7% and 5%, respectively. Premium growth in Latin America and the Caribbean was a modest 0.1%. Similarly, premium growth in Africa was weak, at 0.5%.
Mobile Phones
Mobile phone penetration is almost universal in advanced countries, and rapidly catching up in emerging and developing economies. According to the World Bank, in 2017 there were more than 115 mobile phone subscriptions per 100 people in North America, Europe, and the East Asia and Pacific region, while there were more than 100 in the Middle East, North Africa, Latin America and the Caribbean. Even in sub-Saharan Africa, there were more than 70 mobile phone users per 100 people. A similar pattern can be found in the use of mobile banking services, albeit at much lower levels. According to the World Bank’s 2017 Global Findex database, the share of the adult population that used a mobile phone or the internet to access a financial institution account in the past year was 68% in North America, 36% in Europe and Central Asia, 32% in the East Asia and Pacific region, 12% in the Middle East and North Africa region, 10% in Latin America and the Caribbean, and 8% in sub-Saharan Africa.
The extent of mobile phone penetration relative to that of the use of mobile banking underlines the potential for further growth in the coming years. For bancassurers in particular, this provides significant opportunities to cross-sell insurance products, while for pure insurers there is also potential for joint ventures between banks and technology companies.
Key Figures
As for the InsurTech segment itself, CB Insights, a tech market intelligence platform, estimated that total global investment reached $2.3bn in 2017 following a compound annual growth rate of 45% since 2012. In the first half of 2018 there were $1.3bn worth of InsurTech deals, putting the year in a good position to top the annual record of $2.7bn in 2015. The bulk of InsurTech deals since 2013 have been made in developed markets, with the US alone accounting for 58% that year. While leading emerging markets, such as China and India only recorded shares of 5% and 4%, respectively, they are beginning to make their presence felt. Emerging markets share of global InsurTech deals is increasing, with China and India accounting for 13% and 10%, respectively, in the second quarter of 2018. Meanwhile, Israel accounted for 6% and South Africa for 4%. While new, sometimes disruptive, market entrants are starting to account for a larger share of sales, 83% of those made between 2012 and 2017 involved an established insurer or reinsurer as a sole or joint investor.
Emerging Asia
Given the size and growth rate of its economy and its even faster expanding insurance sector, it is hardly surprising that China is not only the top emerging market contributor to global premium growth, but has been a key driver of overall global premium growth in recent years. In 2017 Chinese insurance premiums adjusted for inflation grew by 16.2% to reach a 4.1% share of GDP. According to Swiss Re, “China will remain the biggest contributor to global insurance market growth among emerging markets for the next decade at least.” Nevertheless, given that the insurance penetration rate will be more in line with more advanced economies by 2030, the increase in Chinese premiums is expected to moderate thereafter, with other emerging markets taking up the mantle to drive the expansion of global premiums.
Beyond China, the extent of InsurTech’s impact varies. Thailand has one of the more developed insurance markets in South-east Asia, with a penetration rate of 5.3% of GDP in 2017. This compares to rates in Malaysia (4.8%), Indonesia (2.4%), Vietnam (2.1%) and the Philippines (1.8%), suggesting that InsurTech could play a more important role in the catch-up of premium growth in less-saturated markets such as the Philippines.
Latin America & the Carribean
Some Caribbean islands – notably the Caymans, the Bahamas and Jamaica – already have reasonably deep insurance markets with penetration rates comparable to advanced economies. As the highest-income economy in Latin America, Chile also had the highest insurance penetration rate at 4.9% of GDP in 2017. With the largest economy in the region by far and a penetration rate of 4.1%, Brazil accounted for the biggest source of premiums at $83.3bn. Mexico, the region’s second-largest economy, had a penetration rate of 2.2%, suggesting significant catch-up potential. InsurTech adoption varies across the region. A notable success in Brazil is Bidu, established in 2011, which has been a pioneer in selling online insurance to final consumers, mainly in the nonlife segment. Adoption is somewhat slower in Mexico, though market players expect uptake to increase.
Middle East & North Africa
Both insurance penetration and digitisation rates vary across the region, registering higher rates on average in the Gulf than in North Africa. In the latter, some countries are tapping into InsurTech to help drive premium growth. Philippe Vial, administrative director-general of La Marocaine Vie, a Morocco-based life insurer and subsidiary of the investment management multinational Société Générale Group, stated that bancassurance holds a competitive advantage owing to the contacts that they have with customers. “These contacts constitute an asset in that they provide us with personal information that helps us to better serve our customers,” Vial told OBG. “The optimisation of these assets is one of our major priorities in the coming years.”
Sub-Saharan Africa
South Africa’s insurance market is already relatively saturated, with a penetration rate of 13.8% of GDP in 2017, higher than most advanced countries and many other countries in the region, while Namibia ranked second in the region at 7.6% and Kenya third at 2.6%. However, there is considerable scope for tech-driven catch-up growth in premiums in West and East Africa. Market players are confident in the potential of digitisation to drive premium growth in Ghana, for example.
Road Ahead
It appears that InsurTech will remain a key driver of premium growth, and therefore rising insurance penetration, in emerging markets for years to come. As the insurance sectors of developing and emerging markets become more sophisticated, it can be expected that digital solutions will filter down through the insurance supply chain, driving operational efficiency and ultimately profitability, as is already being seen in more advanced markets.
Ultimately, achieving insurance penetration rates comparable to those in advanced economies will require further convergence in terms of macroeconomic development and income levels. Efforts to boost financial literacy and awareness about the potential benefits of insurance products in markets where they have not traditionally had a strong presence will also be essential. Lastly, it will be important for products to become tailored to specific markets to help overcome persistent cultural resistance to using formal financial services.
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