USD 5 trillion and counting...
But what's in a number? There are five reasons why this is a significant milestone:
1. Technology & innovation
Insurance has typically been a product (or service) that is sold, rather than one that people gladly buy. It is seen as expensive, complicated and difficult to source. Plus, there is a general perception that insurance claims are often not settled in the way policy holders expect.
Overcoming these challenges requires a different type of relationship between customers and insurers. We see technological developments and new innovations slowly creating fundamental shifts in how customers engage with insurance companies. Tech and innovation are making insurance more user-friendly, similar to what happened in other industries.
Some examples include:
- We see a shift from stand-alone products to more holistic, packaged, and modular ones that cater to people's preferences. For example, insuring risks is increasingly combined with services that help you prevent these risks from happening in the first place, enabled through connected objects (think of car sensors, or wearables).
- We also see shifts in marketing and distribution, in the way claims are paid, as well as in pricing. For instance, premiums are increasingly linked to usage-based dynamic data, leading to a whole new range of "dynamic" products in the life and health insurance sector to help tackle diseases like diabetes. Or think of the next generation motor telematics solutions that are currently being rolled out.
2. People & skills
Insurance is often seen as an industry of actuaries and underwriters. Of course, these make up an important part of the sector's job profiles, but the assumption that they are the only ones couldn't be further from the truth. Moreover, practically every profession has a link to insurance, and I count art curators, medical doctors, engineers, and many more professionals as colleagues. We touch every segment of life. The breadth of our practice allows for an understanding of basic human needs and how we can address them. Particularly, because we know that we can directly influence economic resilience if we get it right.
In my daily interactions, I observe that a strong sense of purpose, and our commitment to bring about positive longer-term societal resilience, serve as a beacon for a broad range of experts who want to make a difference.
Now, we are seeing a wave of new talent entering the industry. These people have a less traditional skillset and bring innovative ideas to the table. While we may never be considered "cool" as some of the new economy companies, I find that the purpose we offer makes insurance an industry that can attract many different roles, such as product designers, computer or behavioural scientists.
3. Growing demand
I once used the metaphor of risk being like a pie: insurers and reinsurers were used to pursuing just a portion. But the pie itself is growing -- there is a clear trend of increasing need for more protection and better solutions.
The growth in demand is not just for conventional products, and as a result, it is pushing our industry out of its comfort zone, forcing us to address protection gaps -- both existing and new.
But there are also considerable and growing environmental risks. In 2018, we saw extreme weather events, such as high-impact hurricanes as well as extreme temperatures. Natural catastrophes, related to climate change, are leading to more damage and rising costs because of the so-called "secondary perils".
4. Addressing needs
No growth can be sustained if it does not address real needs. This starts with listening to customers and focusing on their needs, instead of relying on legacy products. In the life and health space, technology is enabling significant advances. Consider how technology and behavioural sciences are now helping to close the mortality protection gap.
In property and casualty, we are growing insurance penetration by responding to what people urgently need. Think of America's flood problem, which we started to tackle over the last couple of years by devising a model that more accurately prices risk, down to the individual home level. Flooding is one of the most underinsured perils. So far, insurance only covered a fraction of the cost of recovery from natural disasters, because it was hard to model and to price. Greater access to data has helped insurers better understand this peril, once thought of as "uninsurable". Closing the flood protection gap is now well within reach.
5. A shifting gaze to the East
Lastly, I want to address a shift to the East. This is more of a trend than a reason, but important to mention in the context of why insurance is growing.
The Swiss Re Institute estimates that in 2019 this USD 5 trillion figure could grow by 3%, with China acting as a key driver of the pivot in global insurance markets to the East. If we look at the last three years, an astounding 50% of global growth has come from China, which is set to overtake the US insurance market as the world’s largest by the mid-2030s. This would have been thought impossible just a decade ago.
Economic momentum will continue to underpin premium growth, and we expect insurance outperformance in the emerging markets.
USD 5 trillion is an impressive number and we ought to celebrate reaching this milestone. But perhaps what is worth celebrating even more are the opportunities that lie ahead: if we continue to put the needs of our customers at the very heart of everything we do and don't settle for the status quo, then I dare say that we could imagine reaching even USD 10 trillion of global insurance premiums in the future.
I hope you will join me on this exciting journey.