EM insurance penetration lagging GDP growth

Bnamericas Published: Tuesday, September 09, 2014

Emerging markets (EMs) worldwide contribute about 40% of global GDP, but account for only 16% of global insurance premiums – an indication of the level of underinsurance in these markets, said insurance think tank the Geneva Association in its 2014 general assembly review.

Research shows that there is a positive correlation between non-life insurance penetration and GDP growth, as coverage encourages positive risk-taking, which is essential for the development of SMEs and entrepreneurship, according to the report.

But in the past 40 years, insured losses worldwide have failed to keep pace with growth in total economic losses from natural catastrophes, said the association, citing a report by global reinsurer Swiss Re.

Insurance growth has not matched the rise in economic activity and risk exposures for a number of reasons.

"There is a relationship between GDP growth and insurance penetration. That is, penetration levels rise markedly once a country reaches a certain state of development before plateauing," said the association.

When income levels are low, insurance coverage is unattainable for a large section of the population.

"At intermediate income levels (about US$10,000), premiums tend to grow twice as fast as GDP per capita and, above GDP per capita levels of USS$30,000, penetration tends to stagnate as insurance demand drops."

Low insurance penetration can also reflect low levels of awareness surrounding the need for coverage, or a certain cultural attitude to risk.

This is particularly common in countries which have emerged from a long period of state monopolization, according to the report.

"In some countries, a preference towards savings as a form of contingent capital means that many individuals and companies assume their balance sheets are robust enough to take on their own risks."

The insurance industry must understand these trends in order to tackle underinsurance and support the development of 'sensible' insurance infrastructure in emerging markets, said the Geneva Association.

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