Executive summary Economic and insurance remium Emerin markets account for around 6 of the word’s ouation and 40 of rowth in emerin markets wi easiy o a ross domestic roduct €‚ƒ„… ut they are under†reresented in insurance 1 outerform advanced markets over the with a com ined share of 1 of o a remiums‡ ˆhe rise of emerin markets next 10 years‡ in the ast decades has rouht to the forefront are markets… in articuar ‰raŠi… ‹ussia… India… Œhina and Žouth ‘frica ‰‹IŒŽ„‡ ˆhe ‰‹IŒŽ countries account for over haf of emerin market outut and 6’ of emerin market insurance remiums‡ ˆhese… and other more esta ished emerin markets… wi remain ma“or contri utors to o a insurance rowth‡2 Insurers have een showin rowin ”f ate… there has een increasin focus on some smaer and ess we†deveoed interest in the so†caed “frontier emerin markets known as the “frontier” emerin markets‡ —or the uroses markets”‡ of this sigma and from the insurance sector ersective… the frontier markets are tyicay those emerin countries with smaer†siŠed economies… ower income eves and insurance sectors in the eary staes of deveoment‡ ‘nother imortant characteristic is a favoura e insurance remium rowth outook… driven y stron fundamentas… imendin reuatory chanes and the infuence of some externa trends‡ ˜ost frontier markets are in Žu †Žaharan ‘frica ŽŽ‘„‡ ”thers are in the Œommonweath of Indeendent Žtates ŒIŽ„… Žoutheast ‘sia and the ˜idde East‡ €eneray seakin… annua rowth in rea €‚ƒ in these countries is forecast to e stron ™ to 10„ in the near future… and tota insurance enetration rates are ow ess than 1‡™ currenty„‡ ˆhe frontier markets have favoura e ‘ key attraction of frontier markets is their catch†u otentia‡ ˆhis in turn rests economic fundamentas and are on different drivers incudin imrovin socio†oitica sta iity… which suorts exected to enefit from reiona trade economic rowth and insurance market deveoment‡ ˜any frontier markets aso and investment initiatives‡ have a undant natura and human youn ouation„ caita‡ ˆhese favoura e conditions wi oost economic rowth… which in turn wi fiter throuh to insurance sector rowth in the years to come‡ ‘so… reiona trade areements and investment forums are set to rovide additiona momentum for rowth in severa markets‡ ˆhe rowth outook for the insurance ˆhe reaisation of rowth otentia wi take years‡ Investment in frontier markets sector in these markets is romisin… rešuires a on†term ersective‡ Žome markets are sma and a reiona focus may ut on a on†term ersective‡ e more aroriate for insurers to uid u scae‡ —rontier markets wi ikey foow a sešuentia rowth attern favourin non†ife and commercia usiness over ife and ersona ines in the initia years of acceeration in insurance enetration‡ ˆhe excetion coud e ersona motor… if suorted y enforcement of comusory third†arty ia iity insurance‡ ›ater… as incomes rise… remiums for ife roducts… with their emhasis on savins… are ikey to row more raidy‡ In addition to income… aroriate Insurance remium rowth is non†inear reative to income rowth… foowin an reuations and new technooies Ž†curve‡ ‘t ow incomes… remiums row aon with income… ut at midde incomes wi oost insurance remium rowth‡ remium rowth is more raid than income… efore sowin at hiher income eves‡ ˆhe same wi ay in the frontier markets ut other factors wi aso ay a roe‡ —or instance… the introduction of ena in reuations ike mandatory insurance and more sohisticated sovency systems shoud exedite sector rowth‡ ›ikewise… the a iity to everae atest technooies can acceerate insurance sector rowth… reducin the time from many years in the advanced markets to “ust a few years in the emerin countries‡ ‘s a resut… the deveoment ath of frontier markets wi not necessariy foow that of advanced or other esta ished emerin markets‡ 1 ‚ata are for 201™‡ 2 Œhina is exected to contri ute more than 60 of the exected increase in emerin market tota remiums in the next 10 years… ased on forecasts y Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ Swiss Re sigma No 2/2016 1
Insuring The Frontier Markets Page 1 Page 3