In 5 charts: positive insurance outlook but economic risks loom

We forecast above-trend premium growth in the global insurance market. Economic growth momentum from the strong cyclical economic recovery will slow due to supply shocks and inflation risks.

Positive economic outlook with uneven and fragile growth

With the strongest momentum from the cyclical economic recovery likely behind us, we forecast in our latest sigma global growth of 5.6% in 2021, followed by a slowdown to 4.1% in 2022 and 3.0% in 2023. The US and China are both affected by declining growth momentum, albeit from high rates. The lagging recovery in the Euro area and Japan is also impacted by the deceleration.

Among the drivers are supply-side shocks, including the energy crisis, labour shortages and supply chain bottlenecks, and inflation, our number one near-term macro risk. Inflationary pressure is most acute in the US, UK and emerging markets. Inflation forecasts for 2021 are lower in China and Japan due to faster-falling prices and weaker consumption.

The growth trajectory will be uneven across countries and momentum fragile. The risk of new COVID-19 variants and new waves of restrictions on economic activity remain as long as global vaccine distribution and uptake are imbalanced. This in turn could perpetuate supply chain disruptions and friction in labour markets, which constrain growth. With the pandemic's legacy of high debt, low interest rates and lower growth, many countries are also less resilient at absorbing future shocks

Global insurance premiums to surpass record USD 7 trillion by mid-2022

Our outlook for global insurance premiums is positive. We expect above-trend growth of 3.3% in 2022 and 3.1% in 2023. We project premiums in the global insurance market to exceed USD 7 trillion for the first time by mid-2022, sooner than we previously estimated. Rising risk awareness both in life and non-life insurance is fuelling this growth as consumers and businesses seek protection after the COVID-19 shock. Rate hardening in non-life insurance commercial lines will offer further support.

We expect above-trend growth rates of insurance premiums in both North America and EMEA regions at 2.4% and 2% annually, respectively, over the next two years. Expansion in emerging markets other than China is expected to be strong with above-trend growth of 5.1% from 2022-2023. We expect China to grow at 7% during this time, up from 1.5% in 2021, largely driven by strong demand for medical insurance, including critical illness covers. In the Asia Pacific region, on the other hand, we expect steady above-trend growth rate of 3.2% up to 2023.

Divergence: between and within countries

Divergence is one of three trends – including digitisation and decarbonisation – that will define what path the world economy takes. Economic indicators diverge both between and within countries. For example, income and wealth disparities within countries risk fuelling social tension.

China's economic recovery has diverged from the other two major economies, the US and Euro area. China quickly returned to pre-pandemic output by 2Q 2020 thanks to its aggressive early response to the COVID-19 outbreak, which supported emerging markets more broadly. China and the US reached their pre-pandemic output of end-2019, adjusted for inflation, by 3Q 2021. We forecast the Euro area will catch up in lost output in 4Q 2021. We expect emerging markets to exceed their 2019 output by more than 4% by end of 2021 – versus 1.8% for advanced economies.

Digitisation: market for 'frontier technologies' to grow nearly 10-fold

Digitisation – the adoption of digital technology throughout the economy – can raise economic productivity by automating manual processes, enabling innovation and reducing costs. Our restricted movement during the pandemic accelerated the digital transformation. Governments are now investing in this transformation by funding internet-enabled "frontier technologies" to "futureproof" economies. For example, US President Joe Biden's infrastructure bill earmarks USD 65 billion for broadband. The EU allocated 20% of its EUR 724 billion Recovery and Resilience Facility funds for digital-related investments, including supercomputing, artificial intelligence, cybersecurity, advancing digital skills and increasing the wider use of digital technologies. The market size of frontier technologies is projected to increase nearly 10-fold from USD 350 billion in 2018 to USD 3.2 trillion in 2025.

Decarbonisation: green investments will pay for themselves

Climate risk, perhaps the biggest long-term societal threat, is materialising in the storms, floods and wildfires that wreaked havoc around the globe this year. How we approach the decarbonisation transition today will define our long-term economic and social outlook. But the transition won't be easy. The energy crisis is partly an unintended consequence of the global push to reduce our reliance on fossil fuels.

Clean energy makes up roughly a tenth, or USD 123 billion, of our energy supply today. To reach zero emissions by 2050, clean energy would need to reach the market share oil has today at roughly USD 1.2 trillion. More investments in alternative energy supplies are needed to fill the gap. This green transition can create new economic opportunities and jobs, as every USD 1 invested is estimated to yield an average USD 4 in economic benefits. A USD 1 trillion global annual investment – or 0.7% of current global GDP – into the green economy between now and 2023 is estimated to create or save roughly 9 million jobs a year and add 1.1% to economic growth, essentially paying for itself.


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