sigma 3/2025 - Growing stronger

The structure of the USD 2.4 trillion global property and casualty (P&C) insurance market is critically important to effectively price, manage and transfer risk. To close the large protection gaps for major global perils requires a deep, diversified and well-functioning P&C market, especially as rising geoeconomic fragmentation creates a backdrop of more serious and less predictable global risks. Our study evidences the growing efficiency in P&C insurance, a market that is finding solutions to maintain insurability and affordability in even high-risk lines of business. For example, in the US P&C value chain, the efficiency savings made in the past 10 years have been fully passed through to policyholders in the form of higher claims ratios.

Global P&C premiums evolution by key market, 2004‒2024

New, more specialised insurance carriers and distributors are helping to bring capacity into the market through innovation in products and pricing. Carriers are outsourcing more underwriting through brokers, managing general agents (MGA) and service providers, particularly in commercial lines in the US and UK. The expanded scope of brokers and MGAs is seen in the expense structure: in US commercial insurance over the last decade, commissions paid per premium dollar rose by 1.9ppts, in contrast to cost reductions in the rest of the value chain. In tandem with these changes, reinsurance cession rates have been rising, supporting hard-to-insure risks and smaller carriers and thus sustaining market capacity.

The P&C insurance value chain, US market, USD billion

P&C premiums are growing at or above the rate of economic growth. High-risk property and liability insurance are growing fastest, especially in advanced markets, due to rising asset exposures, natural catastrophe losses, and economic and liability claims inflation pressures. Fuelled by a hard market, P&C market growth outpaced global GDP in nominal terms over the past decade (4.3% vs. 3.3% in 2014‒24), and we forecast growth broadly in line with GDP over the next 10 years. Market concentration has been in general declining as smaller commercial P&C players have emerged. In nine of the 11 large markets analysed, the top five firms hold lower shares now than in 2004. Alternative risk carriers offering customised solutions are flourishing. Captives are today an estimated USD 60–80 billion global market, while insurance pools and residual markets are helping maintain availability for hard-to-insure risks.

P&C top five insurance company market shares, 2004 and most recent

Distributors are growing in influence as functions formerly performed by vertically integrated insurance carriers are disaggregating. Tasks are being allocated to a wider variety of differentiated players offering specialisation and technology. Still, oversight challenges and other risks may rise as tasks such as risk selection or claims handling occur beyond carriers’ direct control. Brokers consistently outperform insurers on profitability, benefiting from capital-light business models, rate-driven revenue growth and margin expansion. Risk carriers will face profitability headwinds as they enter an increasingly competitive phase of the underwriting cycle, pointing to a rise in the importance of the underwriting function within the value chain. Risk carriers must be able to earn their cost of capital over the long term in the face of loss surprises and continue to expand capacity in excess of the growth in risks. 

We see more risk transferring to reinsurance and retrocession in future. Reinsurance premiums grew by 7% CAGR over the past decade, faster than primary P&C. Retrocession volumes grew by about 8 to 10% CAGR, as issuance of insurance linked securities (ILS) doubled since 2013. Higher-risk lines of business such as property and US liability with higher cession rates are growing faster than low-risk lines. The diffusion of risk carriers also implies faster growth of smaller insurers, which tend to have higher cession rates. The free flow of capital and retrocession is essential for efficient global diversification of large and interconnected risks. The future insurability and affordability of risk transfer relies upon how efficiently all actors can manage distributed value chains, and harness capital markets to match risk capital with growing and evolving global risks.