Insuring The Frontier Markets
No 2 /2016 Insuring the frontier markets 01 Executive summary 02 Introduction: which are the frontier markets? 06 I nsurance in the frontier markets 24 Insurin the emerin and frontier markets
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
Introduction: which are the frontier markets? Emerin markets have consistenty ˆhe emerin markets have rown more raidy than advanced markets in ¡ of the ast 4™ years‡¡ outerformed the advanced markets ‘verae annua rea €‚ƒ rowth was ™‡0 etween 1’¢0 and 201™ 4 in terms of economic rowth‡ comared with 2‡6 in the advanced markets‡ In €‚ƒ terms… the emerin economies exanded eiht†fod in that eriod‡ ‰y 201™… they accounted for cose ™ to 40 of word €‚ƒ… u from around 1™ in 1’0‡ ˆhis rowth has fitered throuh into ˆhe stron rowth in emerin economies has fitered throuh to their insurance countries’ insurance sectors… and there sectors… with the atter coectivey rowin at around dou e the rate of the is ame scoe for further industry underyin economy in the ast 20 years‡ Insurance enetration… defined as deveoment‡ remiums as a ercentae of €‚ƒ… in the emerin markets rose to 2‡¢ in 201™ from 1‡¢ in 1’’™‡ £owever… this increase came from a ow ase and the emerin markets’ tota share of o a ife and non†ife remiums remains eow 20… ess than haf the markets’ share of o a €‚ƒ see —iure 1„‡ In other words… there is sinificant catch†u otentia for insurers in the emerin economies‡ Figure 1 40% Emerin markets’ share of o a €‚ƒ… 35% non†ife and ife remiums… 30% 19.2% 25% 20% 15% 10% 12.1% 12.4% 5% 0% GDP Non-life premiums Life premiums 1980 2000 2015 Žource: ”xford Economics… Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ 3 ˆhe desination of the economies in this sigma as “advanced” or “emerin” is eneray in keein Internationa ˜onetary —und I˜—„ conventions‡ ‘dvanced markets incude the ¥Ž… Œanada… ¦estern Euroe excudin ˆurkey„… Israe… ”ceania… §aan and the other advanced ‘sian economies‡ ¦ith the excetion of ŒŠech ‹eu ic… Estonia… Žovenia and Žovakia… a other markets are cassified as “emerin” in keein with the I˜—’s criteria for “emerin and deveoin” economies‡ 4 ¥ness otherwise stated… a rowth rates indicate chanes in rea terms that have een ad“usted for oca consumer rice infation‡ 5 ˆhe deveoment of the emerin markets is more dramatic when assessed in terms of urchasin ower arity ƒƒƒ„‡ —or exame… atest estimates y the I˜— shows that emerin markets were aready on ar with advanced†market €‚ƒ ased on ƒƒƒ terms in 200¢†200‡ ‰y 2020… they are exected to account for more than 60 of word €‚ƒ in ƒƒƒ terms… ut ony 4¡ if €‚ƒ is measured in ¥Ž doar terms‡ Žource: World Economic Outlook Database, I˜—… ”cto er 201™‡ 2 Swiss Re sigma No 2/2016
‹isin incomes mean more eoe Insurance rowth varies reative to income rowth… deendin on the eve of can afford insurance‡ economic deveoment‡ ‚emand for insurance remains imited at ow income eves‡ ‘s househods ein to e a e to meet asic needs… the a iity to afford insurance wi tyicay rise faster than income rowth‡ ‹isin incomes in the emerin markets… where the emirica income easticity of insurance demand6 is tyicay hiher than 1‡0 see —iure 2„… ena e more eoe to uy insurance‡ In non†ife… income easticity in the emerin markets overa has increased over the ast three decades ut in ife… it fe eow 1‡0 in 2006†201™‡ ˆhis was mainy due to reuatory ¢ chanes in Œhina and India that neativey affected ife remiums in 2011†1¡‡ In comarison… the income easticity of insurance demand in the advanced markets has remained at around 0‡’ in non†ife… and fe from 1‡¡ in 1’6†1’’™ to 0‡’ in 2006† 201™ in ife‡ ˆhe financia crisis may have adversey affected demand for insurance in the advanced markets… ut the decine in the income easticity aso refects the ower roensity to uy insurance at hiher income eves‡ Figure 2 2.5 €‚ƒ easticity of insurance remiums in emerin reions 2.0 1.5 1.0 0.5 0.0 Non-life Life Non-life Life Non-life Life Non-life Life Non-life Life Emerging Emerging Adanced markets Asia Latin America CEE markets 1986–1995 1996–2005 2006–2015 Note: ‚ata for Œentra and Eastern Euroe ŒEE„ for 1’6†1’’™ are not avaia e‡ Žource: ”xford Economics… Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ ˆhe ‰‹IŒŽ have een the most rominent In recent decades… different institutions have assined what have ecome of emerin market country rouins‡ reconised names for rouins of different emerin market countries‡ ˆhe most rominent of these has een the ‰‹IŒŽ countries‡ Œoectivey… the ‰‹IŒŽ accounted for around ™™ of emerin market €‚ƒ in 201™… and ™’ of non†ife and ¢¢ of ife insurance remiums‡ Exames of other country rouins are ˜INˆ… E‘€›E and ŒIªEˆŽ… aso coections of economies exected to sustain hih rowth in the comin years‡ 6 ˆhe income easticity of insurance demand measures chanes in insurance remiums as a resut of chanes in €‚ƒ… which is a used as a roxy for tota income‡ ‘n easticity of 1‡0 means insurance remiums increase roortionay with income‡ ‘n easticity of 2‡0 means that for every 1 increase in income… remiums row 2‡ Emirica evidence shows that easticity chanes with income eves‡ Žee: ‹udof EnŠ… “ˆhe Ž†Œurve ‹eation ‰etween ƒer†Œaita Income and Insurance ƒenetration”… The Geneva Papers on Risk and Insurance, ªo‡ 2™… no‡ ¡… §uy 2000‡ 7 New reuations on ancassurance in Œhina… and for unit†inked insurance distri ution in India‡ 8 ˜INˆ ¯ ˜exico… Indonesia… Nieria and ˆurkey° E‘€›E ¯ ‰anadesh… ‰raŠi… Œhina… India… Indonesia… Iraš… ˜exico… Nieria… ƒakistan… ƒhiiines… ‹ussia… Žaudi ‘ra ia… ˆhaiand and ˆurkey° and ŒIªEˆŽ ¯ Œoom ia… Indonesia… ªietnam… Eyt… ˆurkey and Žouth ‘frica‡ Swiss Re sigma No 2/2016 ¡
Introduction: which are the frontier markets? ”f ate… there has een rowin interest ˆhe non†‰‹IŒŽ emerin market countries are siŠea e… accountin for 1 of in the “frontier markets”‡ o a €‚ƒ 2¢ in urchasin ower arity terms„ and 42 of word ouation‡ ˆheir economic rowth has consistenty exceeded that of the advanced markets‡ ”f ate… in insurance a su set of the non†‰‹IŒŽ countries has een ainin increasin attention: the “frontier markets”‡ ˆhe term was first used more than two decades ao to denote ešuity markets that were sma and ess accessi e… ut sti considered investa e‡ ˆhere is no areed definition of frontier markets‡ —or the uroses of this sigma… they are considered to e the ess†esta ished insurance markets in smaer emerin economies… with a romisin rowth outook‡ ˆhe markets tyicay feature the foowin characteristics: ‰roady defined… the frontier markets 1‡ ›ow insurance enetration‡ —rontier markets are usuay at an eary stae of have ess esta ished insurance sectors economic and insurance deveoment‡ Insurance enetration is ow and there is and sma economies‡ hih catch†u otentia‡ Žome markets may retain ma“or arriers to entry and ack advanced insurance reuations‡ 2‡ ›ow income‡ ‘nother usua characteristic of frontier markets are ow income eves‡ ˆhere are excetions… for exame hiher†income emerin markets where insurance is sti heaviy under†deveoed due to reuatory and other socia and cutura reasons‡ ‘nd there are aso ow†income†eve markets with aready more advanced insurance sectors iven a history of i era entry of forein insurers into the market‡ ¡‡ Žma economies‡ —rontier insurance markets are usuay in smaer†siŠed emerin economies‡ ˜ost are emerin markets have we†esta ished insurance sectors with oth domestic and forein ayers‡ 4‡ Žtron economic rowth otentia‡ ƒerhas the most imortant attri ute of frontier markets is their stron rowth otentia‡ ˆhe otentia oortunity in insurance is continent on ro“ected economic rowth‡ ‹euations… ease of forein insurer entry ˆhis sigma uses these criteria to define frontier markets and review the rosects of and financia market i eraisation are a seect set of countries‡ ”ther factors are aso evauated to achieve a etter sense of other factors that can affect the insurance market otentia‡ In articuar… reuatory frameworks and the accetance deveoment of insurance markets‡ of forein insurers to enter the market can reaty infuence the deveoment of a country’s insurance sector‡ ‘so… insurers in countries underoin financia sector reform and market i eraisation coud exerience stroner rowth than those oeratin in more restrictive environments‡ ˆa e 1 ists the frontier markets incuded ˆa e 1 incudes the key characteristics of the frontier markets reviewed in this in this sigma‡ sigma‡ ˜any other countries šuaify as frontier markets… ut sometimes ack sufficient data to assist in anaysis‡ ”thers are frontier markets… ut with ow otentia due to reuatory and ea issues‡ 4 Swiss Re sigma No 2/2016
Table 1 ±ey characteristics of the frontier insurance markets reviewed in this sigma… 201™ €‚ƒ… €‚ƒ er caita… €‚ƒ rowth ƒouation… Non†ife enetration… ›ife enetration… ˆota enetration… in Œountry ¥Ž‚ iion ¥Ž‚ 2016†2020—„ miion in of €‚ƒ in of €‚ƒ of €‚ƒ Sub-Saharan Africa ‘noa 126 ™0¡ ¡‡’ 2™‡0 0‡’ 0‡02 1‡00 Œote d’Ivoire ¡0 1¡0 6‡¢ 22‡¢ 0‡¢ 0‡¢™ 1‡62 Ethioia ™ ™¡ 6‡™ ’’‡4 0‡™¢ 0‡04 0‡62 €hana ¡’ 1412 6‡0 2¢‡4 0‡™¢ 0‡™1 1‡0¢ ±enya 64 1¡1 6‡2 46‡1 1‡’1 1‡0¢ 2‡’ ˜oŠam išue 22 ¢’4 6‡¢ 2‡0 1‡0™ 0‡1 1‡2¡ Nieria ™02 2¢™¡ ™‡0 12‡2 0‡21 0‡0 0‡2’ ommonwealth of Indeendent States ‘Šer ai“an ™1 ™22’ 2‡6 ’‡ 0‡™ 0‡14 0‡¢2 ±aŠakhstan 12 10 ¡2¢ 4‡™ 1¢‡6 0‡™2 0‡14 0‡66 €eoria 14 ¡466 4‡4 4‡0 0‡’¢ 0‡06 1‡0¡ atin America ‰oivia ¡¢ ¡46’ ¡‡™ 10‡¢ 0‡¢ 0‡¡¡ 1‡20 Œoom ia ¡™ ¢21 ¡‡6 4’‡™ 1‡0 0‡¢¡ 2‡™4 Ecuador 10™ 64 ¡‡1 16‡2 1‡41 0‡¡1 1‡¢2 ƒeru 204 6™¡0 4‡2 ¡1‡2 0‡’¢ 0‡’ 1‡6 Southeast Asia Œam odia 1 112¢ ¢‡™ 1™‡6 0‡¡™ 0‡00 0‡¡™ ›aos 12 1¢6¢ ¢‡6 6‡ 0‡44 0‡01 0‡4™ ˜yanmar ¢6 1406 6‡’ ™¡‡’ 0‡0¢ 0‡01 0‡0 ªietnam 1’¢ 2106 6‡6 ’¡‡4 0‡¢4 0‡2 1‡™6 South Asia ‰anadesh 1’1 11’ 6‡2 161‡0 0‡1’ 0‡™¡ 0‡¢2 ƒakistan 26™ 1400 ™‡™ 1‡’ 0‡2¢ 0‡™4 0‡2 Žri ›anka ¢ ¡62¡ 6‡™ 21‡6 0‡™ 0‡4 1‡06 Note: —iures refer to 201™ uness otherwise stated‡ Žome insurance enetration rates are estimates y Žwiss ‹e Economic ‹esearch Ÿ Œonsutin if definitive fiures are not avaia e‡ — ¯ forecasts‡ Žource: ”xford Economics… Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ ˆhis sigma aso ooks at seect frontier ˆhis sigma’s seection of frontier market is † y necessity † ar itrary to a certain markets in ‘frica… the Œommonweath deree: not a frontier markets can e incuded‡ In addition to the four main criterion… of Indeendent Žtates… ›atin ‘merica… economic reform measures or imminent accession to the ¦ord ˆrade ”ranisation Žoutheast ‘sia and Žouth ‘sia‡ ¦ˆ”„ has aso infuenced seection‡ In Žu †Žaharan ‘frica… seven frontier markets are of articuar interest to insurance: ‘noa… Œote d’Ivoire… Ethioia… €hana… ±enya… ’ ˜oŠam išue and Nieria‡ ˜eanwhie… €eoria… ‘Šer ai“an and ±aŠakhstan have een chosen as same frontier markets from the Œommonweath of Indeendent Žtates‡ ˆhe atter two disay favoura e socio†economic fundamentas to suort insurance rowth in the medium to oner term‡ ›atin ‘merican economies are eneray too are to e a tyica frontier market… with hiher incomes and with more esta ished financia sectors‡ £owever… there are some e… ‰oivia… Œoom ia… Ecuador and ƒeru„ that stradde “esta ished emerin” and “frontier market” status… and are therefore incuded in this reort‡ —rom Žoutheast ‘sia… the chosen markets are Œam odia… ›aos… ˜yanmar and ªietnam… and from Žouth ‘sia they are ‰anadesh… ƒakistan and Žri ›anka‡ 9 ˆhe seection of the seven ŽŽ‘ markets is ased on the rankin and assessment of market insurance oortunities y Žwiss ‹e‡ £ence… Nieria and ‘noa are not on the ˆo ¡0 ist… rankin ¡¢ and 4¡… resectivey‡ £owever… they do have cose fit with the rofie of frontier markets and so are aso covered in this sigma‡ Swiss Re sigma No 2/2016 ™
Insurance in the frontier markets Žu †Žaharan ‘frica ŽŽ‘ is a diverse reion of 4 states ŽŽ‘ is a diverse reion consistin of 4 indeendent states‡ ‘ markets… with the which… with the excetion of Žouth excetion of Žouth ‘frica… can e considered frontier markets‡ Žouth ‘frica has ‘frica… are a frontier markets‡ one of the most advanced ife markets in the word‡ It is at the forefront of industry innovation… and has the third hihest enetration rate o ay‡ ˆhis chater ooks at the ŽŽ‘ frontier markets ony… with a focus on the insurance sectors in ‘noa… Œôte d’Ivoire… Ethioia… €hana… ±enya… ˜oŠam išue and Nieria‡ Figure Ževen frontier markets in ŽŽ‘ Ethiopia Cote d’Ivoire Kenya Ghana Nigeria Angola Mozambique Žource: Žwiss ‹e‡ conomic deeloment Economic rowth in the ŽŽ‘ frontier ‹ea €‚ƒ in the ŽŽ‘ frontier markets rew y an annua averae of 6‡4 etween markets has remained stron… at 6‡4 2000 and 2014… ony sihty sower than eer markets in ‘sia‡ ˆhe ŽŽ‘ countries er annum since 2000‡ differ widey in terms of economic structure… socio†oitica and cutura ackround… and aso insurance market ractices‡ Nieria is y far the arest economy with €‚ƒ of a out ¥Ž‚ ™20 iion in 2014 42 of the ŽŽ‘ frontier market tota„… foowed y ‘noa ¥Ž‚ 1¡0 iion„‡ ˆhe other economies are sinificanty smaer‡ ‘ key rowth driver over the ast decade has een hih commodity and aricutura rices… athouh these have een much weaker recenty‡ ”ther sectors such as financia services… teecoms… rea estate and ersona services… have aso seen stron rowth‡ ”i imorters and countries with more Economic rowth in the markets has sowed more recenty… with Nieria and ‘noa diverse exorts and infrastructure articuary hard hit y oi rice weakness since eary 201™‡ In oth nations… the investment ans wi continue to see ma“ority of exorts and overnment revenues are deendent on oi and as saes… soid economic rowth‡ and oth countries need to diversify their economies and uid infrastructure to suort usiness activity in other areas‡ €hana is aso a net exorter of oi… aonside od and cocoa‡ It had to seek I˜— assistance after the overnment deficit siraed 10 out of contro in 2014‡ —or the other markets covered in this chater – ±enya… Ethioia… Œôte d’Ivoire and ˜oŠam išue – ow oi rices are a ositive factor as they reduce the imort i and the cost of fue su sidies‡ ±enya in articuar is exected to see sustained soid rowth iven are investments to urade its infrastructure e… the construction of Žtandard €aue ‹aiway transort system„‡ 10 In ‘ri 201™… the I˜— offered ¥Ž‚ ’1 miion to €hana to suort medium†term economic reform initiatives… in a three†year arranement under the Extended Œredit —aciity‡ 6 Swiss Re sigma No 2/2016
ˆhere is sti widesread overty in the ‚esite the overa soid rowth since the turn of the century… €‚ƒ er caita in ŽŽ‘ frontier markets … ŽŽ‘ remains ow‡ Income and weath distri ution is hihy uneven… and overty is widesread‡ In 2012… an estimated ¡’0 miion eoe… or 4¡ of the tota ouation… ived on ess than ¥Ž‚ 1‡’0 er day… the ower of two overty ines 11 adoted y the ¦ord ‰ank‡ ˆhis is an imrovement from 1’’0… when ™6‡ of the ouation ived in extreme overty‡ Imroved overnance has een a factor 12 in overty reduction… ut the deree of roress varies widey etween countries‡ … and rowth is set to sow to around ™ ‘thouh more moderate than in recent years… overa economic rowth in ŽŽ‘ is annuay in the next five years‡ forecast to maintain a heathy ace of around ™ er annum etween 2016 and 2020‡ ŽŽ‘ wi remain one of the fastest rowin reions in the word… aonside emerin ‘sia‡ ‘ricuture… financia services… teecoms and infrastructure investments are ikey to e the main rowth drivers… whie the onoin ow oi rice has damened am itions of deveoin newy discovered oi and as fieds‡ Insurance market outlook Insurance enetration in ŽŽ‘ markets is Žince 2000… rea remium rowth in the ŽŽ‘ frontier markets has een ower than eneray ow and varies widey across rea €‚ƒ rowth… damened y years of oitica insta iity and civi wars… which the reion‡ affected the insurance sector much more than economic rowth‡ Insurance 1¡ enetration varies widey amon the markets‡ ˆhe deree of under†enetration is more ronounced in ife than in non†ife insurance‡ ˆhe ŽŽ‘ markets are mosty in the eary staes of deveoment… meanin insurance for commercia risks construction… enineerin… minin or oi and as… rou ife usiness„ dominate‡ ˜otor insurance is ainin in imortance… however… due to increasin enforcement of comusory motor third†arty ia iity ˜ˆƒ›„ cover in many markets‡ Figure 12 000 in USD illion 60% ƒremium voumes ›£Ž„ and rea rowth rate ‹£Ž„ in ŽŽ‘ frontier markets… 10 000 45% 1’’–2014 000 8 30% 6 000 15% 4 000 0% 2 000 –15% 0 –30% 98 999 000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 19 1 2 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Life Life real growth Non-life Non-life real growth Žource: Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ 11 World Development Indicators, ˆhe ¦ord ‰ank… htt://data ank‡word ank‡or/data/reorts‡ asx?source¯word†deveoment†indicators‡ htt://overtydata‡word ank‡or/overty/reion/ŽŽ‘ 12 Ibrahim Index o rican Governance, ˜o I rahim —oundation… 201™‡ htt://static‡moi rahimfoundation‡ or/u/201™/11/0¡1¢42™2/201™†Executive†Žummary‡df 13 Insurance in ubaharan rica gearing up or strong groth, Žwiss ‹e… 2012‡ Swiss Re sigma No 2/2016 ¢
Insurance in the frontier markets ±enya is the most advanced amon ”f the frontier markets… ±enya has the most sohisticated insurance sector and the ŽŽ‘ frontier markets… ut there reuatory framework… and aso the hihest eve of insurance enetration‡ In the are initiatives to increase insurance other countries… awareness of the imortance of insurance for economic and socia enetration esewhere in the reion‡ roress is rowin… and overnments and reuators are increasin their efforts to foster rowth of an effective insurance industry‡ ”ne area of activity is eimination of maractices… such as non†ayment of eitimate caims… eiminatin fake insurance oicies/comanies… and the enforcement of a “cash and carry” rincie an insurer may ony issue a oicy after he has received the remium ayment„‡ In the western 14 reion of ŽŽ‘… the Inter†‘frican Œonference on Insurance ˜arkets ŒI˜‘„ … a suranationa oranisation… has een drivin this trend‡ ‘t the same time… imroved reuation and suervision shoud eventuay ead to industry consoidation and stroner caitaisation… which in turn wi aso increase consumer trust in insurers‡ Table 2 ±ey economic and insurance indicators of ŽŽ‘ countries… 201™ €‚ƒ… €‚ƒ er caita… €‚ƒ rowth ƒouation… Non†ife enetration… ›ife enetration… ˆota enetration… ¥Ž‚ iion ¥Ž‚ 2016–2020—„ miion in of €‚ƒ in of €‚ƒ in of €‚ƒ ‘noa 126 ™0¡ ¡‡’ 2™‡0 0‡’ 0‡02 1‡00 Œote d’Ivoire ¡0 1¡0 6‡¢ 22‡¢ 0‡¢ 0‡¢™ 1‡62 Ethioia ™ ™¡ 6‡™ ’’‡4 0‡™¢ 0‡04 0‡62 €hana ¡’ 1412 6‡0 2¢‡4 0‡™¢ 0‡™1 1‡0¢ ±enya 64 1¡1 6‡2 46‡1 1‡’1 1‡0¢ 2‡’ ˜oŠam išue 22 ¢’4 6‡¢ 2‡0 1‡0™ 0‡1 1‡2¡ Nieria ™02 2¢™¡ ™‡0 12‡2 0‡21 0‡0 0‡2’ Žource: ”xford Economics… Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ €o a and reiona insurance comanies ˆhere has een more ˜Ÿ‘ activity in the ŽŽ‘ frontier markets of ate… with Nieria have increased their ace of acšuisitions and ±enya deemed articuary attractive‡ ˜any markets remain hihy framented… in ŽŽ‘‡ rovidin ame scoe for further consoidation‡ ˆhe reion is increasiny attractin uyers from ¦estern Euroe… and aso from northern ‘frica and Žouth ‘frica‡ ˆhe insurance exertise o a and reiona ayers rin into the markets wi he cose some of the human caita ski as sti revaent in certain markets‡ Œommercia risks are the main ine in ‚ue to the imortance of are commercia risks oi and as… enineerin… minin… many ŽŽ‘ markets… with risks often infrastructure construction„ coued with the sma caita ase and ack of rokered and underwritten in the underwritin skis of oca comanies in these sements… much of ŽŽ‘ frontier internationa markets‡ market insurance usiness is rokered and underwritten in the internationa markets‡ €o a reinsurers ay an imortant roe in rovidin know†how‡ ‘ainst this ackdro… many reiona reuators are ookin to uid oca caacity y deveoin rues to utiise avaia e oca re/insurance resources… oo certain risks and enforce comusory cessions to nationa reinsurance comanies‡ 14 ˜em ers: ‰enin… ‰urkina —aso… Œameroon… Œentra ‘frican ‹eu ic… Œomoros… Œono… Œôte d’Ivoire… €a on… Ešuatoria €uinea… €uinea ‰issau since 2002… first non†francohone mem er„… ˜ai… Nier… Ženea… Œhad and ˆoo‡ ŒI˜‘ has reuatory and suervisory authority in the mem er states to reare for a common insurance market‡ Swiss Re sigma No 2/2016
rowth outlook Economic rowth and a few key trends Žustained stron economic deveoment wi remain a key rowth driver for wi oost insurance enetration‡ insurance in ŽŽ‘ countries‡ Žome other emerin trends wi aso he raise enetration… incudin mo ie† ased and micro†insurance… innovative aricutura oicies and are infrastructure ro“ects‡ €obile-based and micro-insurance ˆhere has een fast rowth in micro† ‘ midde cass to suort the exansion of traditiona retai insurance is emerin insurance in ŽŽ‘ over the ast decade‡ ony very sowy in the ŽŽ‘ frontier markets‡ ˜ost eoe have very ow incomes and sma sums insured are very common in ersona ines of usiness‡ ‘s a consešuence… micro†insurance… ie… sime and fexi e insurance roducts with sma remiums… has een rowin very strony in ŽŽ‘ and is exected to continue to do so‡ Œommunity† ased mutua„ micro†insurance schemes are sti the most common form found on the continent‡ Increasiny… however… rofit†oriented comanies are aso rovidin micro†insurance roducts‡ ˆoday credit ife roducts are the most common… ut the rowth otentia for other roducts… articuary heath… is very are‡ ‘nd use of mo ie technooy wi e ¦ith very sma remiums… cost†efficient rovision of insurance via mo ie hones a key rowth area for insurers in ŽŽ‘‡ and other technooies €ƒŽ… sateite imain ena in index† ased roducts„ is key‡ ˆoday consumers can aready o tain šuotes… urchase insurance roducts and e issued oicies y insurers„… ay remiums and su mit caims usin asic mo ie hones‡ ˆhese mo ie† ased offers are often driven y non†insurance ayers ike mo ie hone oerators and technooy comanies‡ ˆwo of the arest technooy service roviders for mo ie micro insurance have reached 1™ aroximatey 2 miion customers com ined‡ ŽŽ‘ has taken the ead in insurance distri ution via asic mo ie hones… and survey evidence indicates that mo ie insurance is reachin many reviousy uninsured and ow†income consumers‡ ‘ survey undertaken across five countries in ‘frica and Žouth ‘sia in eary 2014 reveaed that ’¢ of the mo ie micro insurance consumers samed were ivin eow ¥Ž‚ 10 er erson er day‡ ”f those… ¢¢ never had any form of rivate 16 insurance reviousy… and 42 had no ank savins account‡ ¦ith the are ow† income ouation in ŽŽ‘… micro†insurance and articuary mo ie† ased insurance roducts… wi ecome a key focus to increasin the reach of insurance in the reion‡ Agriculture ‘ricuture insurance is aso rowin ‘ are share of the ouation in ŽŽ‘ works in aricuture… mosty in sma or famiy raidy … farms‡ ¥radin aricutura roduction is a centra o “ective of many nationa economic oicy rorams… and this wi ikey fiter throuh into stroner demand for aricutura insurance in the future‡ ‘ricutura insurance is a key financia safeuard for farmers… rotectin them aainst a oss of ivestock or harvest due to… for exame… drouht or foodin‡ ˆhese disasters can ruin a famiy which has ony a sma amount or no savins‡ ˆhus… u ic†rivate artnershis rovidin aricutura insurance are ecomin more ouar in ŽŽ‘‡ ˜any of the roducts use mo ie technooy to hande oicy administration and ay outs… and arametric triers to minimise the cost of caims assessment‡ … incudin an index† ased ivestock ˆhere are many aricutura insurance schemes in the frontier markets‡ ‘ recent insurance scheme in ±enya‡ exame of innovation is the ±enyan ›ivestock Insurance ƒroram ±›Iƒ„… which has een test†ioted since autumn 201™… and which the overnment ans to ro out across ±enya’s 14 counties‡ ±›Iƒ works as an index† ased ivestock insurance scheme… usin the NormaiŠed ‚ifference ªeetation Index N‚ªI„… which measures ant “reenness” or hotosynthetic activity‡ ˆhe N‚ªI is derived from sateite hotos of and‡ ˆhe coour of the round is an indication of how dry the area is – yeow is very dry and reen is not dry‡ ”nce a certain dryness threshod is reached… the farmers insured under the scheme automaticay receive a um sum ayment which they can use to uy feed for their ivestock‡ It is not to comensate for oss of ivestock… ut to rotect the ivestock from the effects of the drouht in the first ace‡ 15 obile insurance distribution in emerging markets rican innovations spreading globall, Žwiss ‹e… 201™‡ 16 Global insurance revie €‚ƒ„ and outlook €‚ƒ…†ƒ‡, Žwiss ‹e… Novem er 201™‡ Swiss Re sigma No 2/2016 ’
Insurance in the frontier markets ±›Iƒ is 100 financed y the ±enyan overnment and is avaia e for free to astoraists nomad farmers„ reistered under the £uner Žafety Net ƒroram‡ 1¢ ˆhe roram covers five troica ivestock units er househod‡ ›oca insurance comanies are sein to†u covers for additiona ivestock‡ ngineering insurance for large infrastructure ro‚ectsƒ e„tractie industries Investments in infrastructure and the ŽŽ‘ frontier markets ack ood u ic infrastructure… and overnments are tryin to extractive industries in ŽŽ‘ wi aso remedy the situation with suort from deveoment rorammes or rivate/semi† oen u insurance oortunities‡ rivate financin‡ Investment in infrastructure wi enefit enineerin and roerty† reated ines of insurance usiness‡ ”ther areas of rowth are extractive industries… incudin exoration of new†found oi and as fieds‡ ‚ue to ow oi rices… most of these ro“ects are currenty on hod as they woud e uneconomica‡ ‰ut if oi rices re ound… many of the oi Ÿ as ro“ects wi e ack on ine‡ In the meantime… oca insurers are vyin for a reater invovement in oi and as‡ ˆhis is ein suorted y reuators who are introducin or enforcin oca content rues for this ine of usiness more viorousy‡ 17 ‘ troica ivestock unit is a reference unit for areatin ivestock deendin on tye… ae and siŠe… with – for exame – a fuy†rown came as 1‡0 unit and catte at 0‡¢ unit‡ 10 Swiss Re sigma No 2/2016
‘Šer ai“an… €eoria and ±aŠakhstan ‘Šer ai“an… €eoria and ±aŠakhstan have ‘Šer ai“an… €eoria and ±aŠakhstan are incuded in this anaysis as exame 1 otentia for a ove†averae economic frontier markets from the ŒIŽ‡ Economic deveoment in these countries… athouh and insurance sector rowth‡ acceeratin in recent years… sti as rowth in other ost†Žoviet countries… and their insurance markets aso remain underdeveoed‡ €iven their ouation siŠe… need for infrastructure deveoment… and strateic ocations etween Euroe and ‘sia… these countries have the otentia for a ove†averae economic and insurance remium rowth in the comin decades‡ Figure … ‘Šer ai“an… €eoria and ±aŠakhstan Geor gi a Kazakhstan Azerbaijan Žource: Žwiss ‹e‡ conomic deeloment £owever… rowth rosects have ˆhe three ŒIŽ markets vary in economic siŠe… and rowth attern and drivers‡ weakened in the current ow oi rice ‘Šer ai“an’s rea €‚ƒ rew at an averae annua rate of 11 etween 2000 and environment… iven the countries’ heavy 2014… the iest increase of a ŒIŽ and ŒEE countries… and even outacin Œhina‡ reiance on oi and as‡ ±aŠakhstan rew y ¢‡¢ on averae durin this time and €eoria y ™‡‡ ˆhe rowth was driven rimariy y demand for natura resources from deveoed and deveoin countries‡ In the case of ±aŠakhstan… Œhina has ecome its arest exort market‡ In contrast… ‘Šer ai“an’s arest exort market is Itay… to which it 1’ exorts crude etroeum‡ ¦ith their rich natura resources ase… from natura as and oi to utonium… the ŒIŽ frontier markets enefitted from the uturn in o a commodity rices that started in the eary 2000s‡ £owever… they have strued to diversify their economies away from oi deendency and… iven the current ow rice of oi… their rowth rosects have weakened‡ ˆhe current economic chaenes have In resonse to the decinin oi rices… ¥Ž doar strenth and dwindin forein sarked currency devauation … exchane reserves… ±aŠakhstan and ‘Šer ai“an have a andoned their doar currency es‡ ˆhis has resuted in su stantia currency dereciations… with the ±aŠakhstani tene osin a out ™0 of its vaue since ‘uust 201™… and the ‘Šer ai“ani manat dereciatin y a out a third since ‚ecem er 201™‡20 ˆhis has heed rotect forein currency reserves ut has aso ed to a drastic increase in infation and financin chaenes‡21 £owever… the short†term ain shoud ena e medium† to on†term imrovements in cometitiveness‡ €eoria has fared etter in the ow commodity rice environment ecause of its more diversified exort ortfoio that incudes auto comonents for ¦estern Euroe‡ Žti… it is feein the effects of sowdown in its arest tradin artner… ‘Šer ai“an‡ 18 €eoria was a mem er of the ŒIŽ unti 200’… when it withdrew‡ It remains affiiated to the ŒIŽ throuh continued articiation in areements such as free trade and visa†free trave‡ 19 ‚ata taken from ¥nited Nations Žtatistica ‚ivision Œ”˜ˆ‹‘‚E„… htt://comtrade‡un‡or/d / 20 ‚ata taken from ‰oom er‡ 21 “‘Šer ai“an outines ans to raise ·2 n without externa aid”… ˆinancial Times, 2 §anuary 2016‡ Swiss Re sigma No 2/2016 11
Insurance in the frontier markets …… ut the near†term outook wi remain ˆhe near†term outook for the three frontier markets wi continue to deend on oi deendent on oi rice deveoments‡ rice deveoments‡ ˆhe current chaenes resent an oortunity for structura reforms to diversify their economies… ut near†term rowth wi remain constrained‡ —or instance… ±aŠakhstan is forecast to row y ony 2 in 2016 efore ickin u momentum to a oner†term rowth rate of a out 4‡™†™‡ ˆhis comares with ‘Šer ai“an… which is forecast to contract this year and ony acceerate towards its otentia rowth rates of a out 4‡™ y 201’‡ €eoria is currenty rowin sihty faster… a out 2‡¢ in 2016… with a simiar rowth otentia of 4‡™ in the on†run‡ Table ±ey economic and insurance indicators for ŒIŽ countries… 201™ €‚ƒ… €‚ƒ er caita… €‚ƒ rowth ƒouation… Non†ife enetration… ›ife enetration… ˆota enetration… ¥Ž‚ iion ¥Ž‚ 2016–2020—„ miion in of €‚ƒ in of €‚ƒ in of €‚ƒ ‘Šer ai“an ™1 ™22’ 2‡6 ’‡ 0‡™ 0‡14 0‡¢2 ±aŠakhstan 12 10 ¡2¢ 4‡™ 1¢‡’ 0‡™2 0‡14 0‡66 €eoria 14 ¡466 4‡4 4‡0 0‡’¢ 0‡06 1‡0¡ Žource: ”xford Economics… Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ ‚esite recent rice weakness… demand ˆhe oner†term outook for these markets remains favoura e‡ ˆhey are rich for enery and commodities… articuary in commodities and the enery†rich Eurasian countries eneray are receivin from Œhina… wi remain an imortant increasin attention from Œhina… a trend that wi ikey e further suemented rowth driver for insurance‡ y the ”ne ‰et… ”ne ‹oad ”‰”‹„ initiative in the comin years‡ ±aŠakhstan in articuar is we ositioned to take advantae of Œhina’s “New Žik ‹oad” initiative… which inks Œhina with ¦estern Euroe y rai and is aready ein used y freiht trains from Œhina to €ermany… and vice versa‡ ‘ three countries are sinatories of the ‘sian Infrastructure Investment ‰ank which was esta ished to assist in the financin of ”‰”‹†reated infrastructure‡ Insurance market outlook ˆhe under†deveoed markets in Insurance remains in its infancy in the ŒIŽ‡ ˆhe three frontier markets in this study ‘Šer ai“an… €eoria and ±aŠakhstan are aready the most advanced of the ŒIŽ countries excudin ‹ussia… ‰earus and reresent an insurance oortunity‡ ¥kraine„‡ €eoria has a reativey hih enetration rate in non†ife insurance… at 1‡0… whie ±aŠakhstan and ‘Šer ai“an are at a out 0‡™ to 0‡6‡ Œomared to this… ‹ussia’s non†ife insurance enetration is 1‡™ of €‚ƒ and the ŒEE E¥ mem er averae is 2‡¡‡22 ˆo a certain extent… this refects the revaiin mindset of reyin on state or famiy suort in the time of need‡ ˜any eoe in the ŒIŽ countries view insurance as a uxury‡ —urther… for those rivate insurers that do exist… the main cometition comes from dominant state†affiiated firms such as ƒ‘Ž£‘ in ‘Šer ai“an… and market concentration is hih‡ ˆhe foowin are some common characteristics of insurance markets in the ŒIŽ frontier countries: ̤ ‚ue to sma market siŠe… insurance sector deveoment has een hihy voatie… ut is sti cosey reated to economic and income rowth‡ ̤ Non†ife usiness is dominant‡ ”ver 0 of remiums in ±aŠakhstan and ‘Šer ai“an are written in non†ife insurance… and over ’0 in €eoria‡ ̤ ˆhe non†ife usiness is mosty driven y the introduction of comusory covers or state initiatives e… medica insurance in €eoria„‡ ̤ ˆhe eacy of the Žoviet ¥nion remains stron‡ ‘ revaiin ack of risk awareness and stron reiance on u ic socia services rovisions has crowded out rivate initiatives‡ 22 ŒEE E¥ mem er averae refers to ƒoand… £unary… Žovenia… Žovakia and the ŒŠech ‹eu ic‡ 12 Swiss Re sigma No 2/2016
Insurance remium rowth has imroved In ±aŠakhstan… insurance remiums rew in 201™ desite a shar economic recenty in ±aŠakhstan… sowdown‡ ”fficia data show remiums rose y more than 10 as rowth in ia iity insurance and roerty insurance remiums continued at dou e†diit rates‡ £owever… some ines exerienced a decine… such as aricutura and aso motor hu insurance‡ ›ife remiums rowth re ounded to 1¢ in 201™… after a 1¢ coase in 2014‡ Even so… ife insurance remains a very sma niche sement‡ ˜edica insurance decined y a out ™‡ … and aso in ‘Šer ai“an‡ In ‘Šer ai“an… ife and non†ife insurance remiums have continued to row in the ast few years‡ Žtron rowth in ife and medica insurance offset a sma decine in non†ife remiums in 2014… the atter due to weaker demand for roerty and motor cover‡ In 201™… tota ife and non†ife insurance remiums were u y a out ¡‡ Non†ife rowth was weak… at “ust over 1… as remiums in motor… the arest ine of usiness… fe ¡‡ £owever… there was a†more†than 20 increase in ia iity remiums‡ ˆhe insurance sector is rowin sower than efore the financia crisis… and current economic difficuties have ed the overnment to downrade its 2020 remium taret from ‘¹N 1 iion to ‘¹N ¢00 miion‡ Nevertheess… this imies an annua averae rowth rate of 10 over the next five years… comared with ¢‡™ annua nomina €‚ƒ rowth‡ In €eoria… remium rowth has een ˆota remium rowth in €eoria has een voatie in recent years mainy due to voatie‡ fuctuations in medica insurance… which rew raidy after the overnment moved to rivatise the heathcare system in 200¢‡ €ross written remiums in medica insurance increased 1†fod etween 2006 and 201¡‡ £owever… thereafter a overnment decision to reverse i eraisation… removin rivate insurance comanies from the rovision of u ic heathcare and renationaiŠin the administration of heathcare… resuted in a 61 contraction of medica insurance remiums in 2014‡ ”vera… non†ife insurance remiums in €eoria rew y over 10 er annum in the five years to 2014‡ ›ife insurance remains at an eary stae of deveoment… accountin for “ust ™ of tota remiums‡ rowth outlook Œomusory insurance rešuirements wi ˆhere are some common rowth drivers for the insurance sectors in the three oost insurance remiums in the three ŒIŽ markets‡ ”ne is the introduction of new cateories of comusory insurance‡ frontier markets … In ‘Šer ai“an… additiona comusory rešuirements… most nota y for medica and unemoyment insurance… wi ikey enerate remium rowth‡ ‘ comusory medica insurance system is exected to e introduced on a tria asis as eary as 201¢ since the overnment aims to shift the fundin of heathcare more towards rivate means‡ In ±aŠakhstan… meanwhie… there has een stron rowth in commercia ines‡ ˆhis… underinned y various comusory ines such as ˜ˆƒ›… rofessiona indemnity and workers’ comensation… is exected to continue‡ … articuary in €eoria… where ˜ˆƒ› ˜eanwhie… in contrast to the other ŒIŽ countries… ˜ˆƒ› insurance is not comusory cover is not yet mandatory‡ in €eoria and to date… the motor sement has remained reativey sma there‡ €eoria needs to make ˜ˆƒ› cover comusory: not ony is it a rešuirement of the E¥ association areement… it aso reresents a very visi e rotection a‡ ‘ aw to make ˜ˆƒ› insurance comusory is anticiated in 2016 and… once enacted… there wi ikey e a sinificant oost to tota insurance remiums‡ Swiss Re sigma No 2/2016 1¡
Insurance in the frontier markets ±aŠakhstan has a ro ust reuatory ‚eveoments in the reuatory environments of the three countries can aso imact framework and in ‘Šer ai“an… a insurance sector rowth‡ In ±aŠakhstan… insurance has enefited from a stron and new unified system for damae riorous reuatory framework… ookin to e more or ess comiant with E¥ norms‡ assessment in motor insurance ˆhe use of E¥ usiness ine cassifications has ena ed ood data coection and shoud uid consumer trust‡ monitorin of erformance‡ ˜eanwhie insurance aws have een made more consumer friendy‡ —or exame… tariffs and ia iity imits have controed remiums… which has further heed uid trust amon the ouation… as refected in the stron utake of vountary insurance‡ In ‘Šer ai“an… a new… unified system of damae assessment for motor insurance shoud he imrove caims handin… transarency and consumer confidence… athouh initia reorts suest decreasin caims and some customer dissatisfaction with the new system‡ —urthermore… the overnment has assed eisation to make settements of comusory car insurance caims more efficient and fraud resistant… and aso to increase the use of diitaisation‡ ˜eanwhie… ‘Šer ai“an “oined the auto insurance €reen card system in 2016‡2¡ —rom 1 ‘ri… ‘Šer ai“ani motorists have een a e to uy €reen card coverae in the E¥ mem er states… ŽwitŠerand and other countries‡ ‹ecent chanes to heathcare oicy In the case of €eoria… the unexected chanes to the nationa heathcare oicy in €eoria rovide an exame of resuted in a sum in medica remiums in 2014‡ ˆhis hihihts the need for how reuations can hinder insurance eisative odies to treat insurers fairy and incentiviŠe them to rovide attractive sector rowth‡ insurance soutions‡ ˆo romote investment and the transfer of forein caita and knowede… countries need to rovide a sta e… suortive reuatory environment‡ ˆhe introduction of takafu insurance ±aŠakhstan is investiatin the introduction of sharia†comiant ˆakafu insurance in ±aŠakhstan shoud aso increase to extend enetration amonst its redominanty ˜usim ouation‡ ”ther than enetration‡ mandatory covers… the utake of insurance amon the ˜usim ouation has remained ow‡ ˆakafu coud he overcome reiious† eief ased hesitations to uyin insurance‡ In ‘Šer ai“an… meanwhie… the overnment and insurers have made efforts to educate the ouation a out the enefits of insurance‡ ˆhe overnment is foowin the ead of ±aŠakhstan here in attemtin to make insurance aws more consumer friendy‡ ±aŠakhstan’s accession to the ¦ˆ” ‘nother common factor in the three markets is a romisin economic rowth wi usher in new cometition drivers‡ outook‡ Insurance enetration in the markets is ow and economic rowth shoud ead to more demand for insurance‡ Œomarin rea €‚ƒ rowth with non†ife remium rowth… the 2000†2014 averae remium rowth was dou e° comared to re†crisis rowth rates… as much as four times hiher‡ ˆhe three markets have moved sowy into the ower section of midde†income countries in the Ž†curve anaysis… indicatin that ains in insurance remiums shoud continue to outace income rowth‡ Imortant structura economic reforms are key to makin this haen‡ ˆrade†enhancin initiatives can aso sustain remium rowth momentum‡ —or exame… ¦ˆ” mem ershi shoud eventuay„ he ±aŠakhstan further oen its rea economy and financia sector‡ ˆhe atter… incudin insurance… wi remain essentiay cosed for forein articiation for a transition eriod of five years‡ ‰ut that is a reativey short eriod and in the interim… oca insurers wi seek to imrove their underwritin caa iities and roduct offerin so as to e ready to face forein cometition y 2020‡ ‘ ossi e outcome of forein entrants is that they coud reduce market concentration: currenty the to five insurers in ±aŠakhstan coect around ™0 of a remiums‡ 23 “ˆhe €reen Œard Žystem is a rotection mechanism for victims of cross† order road traffic accidents‡ It consists of 4 mem er countries reresented y 4¢ Nationa Insurers’ ‰ureaux‡” htt://www‡co x‡or/Œontent/‚efaut‡as?ƒaeI‚¯™¢ 14 Swiss Re sigma No 2/2016
›atin ‘merica: ‰oivia… Œoom ia… Ecuador and ƒeru ‰oivia… Œoom ia… Ecuador and ƒeru form ˆhe ‘ndean countries of ‰oivia… Œoom ia… Ecuador and ƒeru form ›atin ‘merica’s a cohesive frontier market ock‡ arest ock of frontier markets the other ein the much smaer rouin of Œentra ‘merican markets„‡ ˆheir mem ershi in the ‘ndean Œommunity of Nations Œomunidad ‘ndina… Œ‘N„ — a customs union datin ack to 1’6’ — underscores their eorahica… socia and economic cohesiveness‡ ˆhe Œ‘N ro“ect has een in a eyance and overshadowed y new rouins such as the ƒacific ‘iance ut nevertheess… the ‘ndean reion reresents a market of considera e otentia‡ Figure † ‰oivia… Œoom ia… Ecuador and ƒeru Colombia Ecuador Peru Bolivia Žource: Žwiss ‹e‡ ¦ith a tota ouation of around 100 miion eoe and com ined €‚ƒ estimated to e around ¥Ž‚ ¢00 iion in 201™ ¥Ž‚ 1‡¡ triion in urchasin ower arity terms„… the four frontier markets are rouhy one†third the siŠe of ‰raŠi‡ Economic rowth in the reion has een ro ust… averain ™‡1 er year in the ast decade… hiher than oth ˜ercosur ¡‡’„ and the ƒacific ‘iance ¡‡¡„‡24 Table ±ey economic and insurance indicators of ‰oivia… Œoom ia… Ecuador and ƒeru… 201™ €‚ƒ… €‚ƒ er caita… €‚ƒ rowth ƒouation… Non†ife enetration… ›ife enetration… ˆota enetration… ¥Ž‚ iion ¥Ž‚ 2016–2020—„ miion in of €‚ƒ in of €‚ƒ in of €‚ƒ ‰oivia ¡¢ ¡46’ ¡‡™ 10‡¢ 0‡¢ 0‡¡¡ 1‡20 Œoom ia ¡™ ¢21 ¡‡6 4’‡™ 1‡0 0‡¢¡ 2‡™4 Ecuador 10™ 64 ¡‡1 16‡2 1‡41 0‡¡1 1‡¢2 ƒeru 204 6™¡0 4‡2 ¡1‡2 0‡’¢ 0‡’ 1‡6 Žource: ”xford Economics… Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ 24 ˜ercosur comrises ‘rentina… ‰raŠi… ƒarauay… ¥ruuay… and ªeneŠuea‡ ˆhe ƒacific ‘iance comrises Œhie… Œoom ia… ˜exico… and ƒeru‡ Swiss Re sigma No 2/2016 1™
Insurance in the frontier markets conomic deeloment ˆhe ma“or ‘ndean economies are ˆhe near†term economic outook is mixed… refectin the ‘ndean countries’ diverse outacin their reiona eers‡ economic oicy frameworks… oitica cimates and macroeconomic fundamentas‡ ‘ four countries rey heaviy on commodity exorts and are exosed to the current o a commodity rice down†cyce‡ £owever… Œoom ia and ƒeru have sound oicy frameworks in ace… fexi e exchane rates… and sta e infows of forein direct investment and soid currency reserves to finance the current account deficit… that wi he cushion the imact of softer commodity rices‡ ˆheir economies are ro“ected to exand y ¡‡0 and ¡‡¡… resectivey… in 2016… sower than the annua averaes of the ast decade ut we a ove the reiona averae 0‡’„‡ ‰oivia and Ecuador… y contrast… have ess oicy fexi iity as a consešuence of the hih of eve state invovement in the economy and fixed exchane rates‡ —urthermore… fu Ecuador„ and eevated ‰oivia„ doariŠation renders their exorts ess cometitive in a stron ¥Ž doar environment… and increases their vunera iity to externa financia shocks‡ Insurance market outlook Insurance rowth has een ro ust… ƒremiums written in the ‘ndean reion totaed ¥Ž‚ 1™ iion in 2014… of which ut enetration remains ow‡ two†thirds came from Œoom ia‡ ˆhis amounts to ony ’ of remium voumes in ›atin ‘merica overa… in which ‰raŠi and ˜exico dominate‡ £owever… the ‘ndean insurance markets — with the excetion of ‰oivia — have recorded some of the fastest rowth rates in the ast decade… toether averain ‡ er year in rea terms… comared to ¢‡¢ for ›atin ‘merica‡ ˆhere have aso een sinificant strides in deeenin insurance enetration… a eit off very ow ases‡ ƒenetration rates… however… remain reativey ow… ranin from 1‡4 of €‚ƒ in ‰oivia to 2‡™ in Œoom ia… comared with ¡‡4 in ‰raŠi and 4‡2 in Œhie‡ ˆhe common rowth constraints for the ‘ndean markets have een: ̤ ow income eves… eseciay in rura areas° ̤ reativey hih market concentrations… refectin the oiooistic dominance of are financia conomerates such as Œoom ia’s €ruo Emresaria ‘ntiošueno Žuramericana„ and ƒeru’s ‰reca €rou ‹imac„ and Œredicor E ƒacifico„° ̤ a recent history of state monooies and rotectionism… incudin a rohi ition on forein investment in Œ‘N mem er countries unti 1’¢° and ̤ recent eriods of macroeconomic and oitica insta iity… incudin hyerinfation and interna conficts in Œoom ia and ƒeru‡ ˆhe usiness environment is more ƒeru and Œoom ia have made etter roress overcomin these constraints than favoura e in ƒeru and Œoom ia than ‰oivia and Ecuador… mainy y undertakin i eraiŠin structura and institutiona in ‰oivia and Ecuador‡ reforms in the 1’’0s and eary 2000s‡ ˆhe reuatory and oeratin environments in these markets have imroved considera y and have encouraed forein insurers to increase their articiation‡ —or exame… the market share of forein insurers in Œoom ia increased from ¡4 in 200¡ to 41 in 2014‡ In contrast… forein articiation in the ‰oivian market has racticay disaeared and the usiness environment in Ecuador has rown more chaenin with the worsenin economic cimate and steady encroachment of the state into the oca re/insurance markets‡ ˆhe u ic sector is a ma“or uyer of insurance in Ecuador… and the two state†owned insurers Žucre and ‹ocafuerte„ have first riht of refusa on a overnment insurance transactions‡ Žince this rue was imemented in 200’… the two insurers have rown their market share to 16 from ™‡ 16 Swiss Re sigma No 2/2016
‡ortunities ˆhe rosects for ‘ndean insurance Insurance market rowth in the ‘ndean reion is exected to remain ro ust… a eit market rowth are reativey ositive ‡‡‡ sower than in the revious decade‡ ˆota remiums are forecast to row y ¢ er year in rea terms etween 2016 and 202™… sihty faster than the 6 ro“ected for a of ›atin ‘merica‡ ˜ost of the rowth wi come from ƒeru and Œoom ia‡ ‰oth countries are ainin their reuatory frameworks with internationa est ractices whie aso entrenchin oen and usiness†friendy trade and investment reimes‡ —or instance… a Euroean ¥nion E¥„†‘ndean Œommunity free trade areement concuded in 201¡ is currenty ein imemented and wi enhance market access for Euroean re/insurance firms‡2™ … with oortunities across many ines ˆhere is sinificant rosect for catch†u in virtuay a ines of usiness in these of usiness‡ markets… eseciay for insurers which can ta into ower†income sements‡ ›are u ic†rivate artnershi ieines… such as the fourth†eneration 4€„ transort infrastructure investment roram in Œoom ia… indicate demand for enineerin… credit and surety insurance‡ ‘nd an anticiated settement of Œoom ia’s on† runnin interna confict wi further interate the rura sector into the nationa economy… creatin new oortunities for aricutura insurance‡ Figure ˆ 12% ‹ea rowth of insurance remiums… 10% 8% 6% 4% 2% 0% 1996–05 2006–15 2016–25F Colombia Ecuador Peru Bolivia Latin merica — ¯ —orecast Žource: Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ 12 10 8 6 4 2 0 199505 200515 201525 25 ˆhe areement currenty ony aies to Œoom ia and ƒeru‡ Ecuador is exected to “oin in 2016‡ Swiss Re sigma No 2/2016 1¢
Insurance in the frontier markets Žoutheast ‘sia frontier insurance markets: Œam odia… ›aos… ˜yanmar and ªietnam ˆhe Œ˜›ª countries are Œam odia… ›aos… Œ›˜ª refers to Œam odia… ›aos… ˜yanmar and ªietnam‡ ˆhey are four of the smaer ˜yanmar and ªietnam‡ markets in Žoutheast ‘sia and have seen sinificant deveoment in recent years‡ Figure ‰ Œam odia… ›aos… ˜yanmar and ªietnam Laos Vietnam Myanmar Cambodia Žource: Žwiss ‹e‡ conomic deeloment Economic rowth in the Œ›˜ª countries ˆhe Œ›˜ª markets have on averae rown y ¢‡2 in rea terms each year since is imrovin‡ 2000‡ ªietnam is the iest of the four markets… accountin for ¢1 of tota €‚ƒ in 201™… foowed y ˜yanmar at 1‡ ‰oth ›aos and Œam odia reresent ess than ¢ of Œ›˜ª €‚ƒ‡ Economic rowth has remained sta e at around 6†¢ in the four markets in recent years… suorted y sta iisin oitica conditions and desite the o a financia crisis and increasin financia voatiity‡ In Œam odia… there has een imroved oitica sta iity since the oosition Œam odia Nationa ‹escue ƒarty ŒN‹ƒ„ ended its 10†month oycott of ariament in ‘uust 2014‡ ˆhis is exected to enefit economic rowth… ift investor confidence… encourae forein direct investment… ena in the ruin Œam odia ƒeoe’s ƒarty Œƒƒ„ to focus on state enterrise reforms… tax consoidation and romotin rivate investment‡ —urther… radua trade interation into the ‘ssociation of Žoutheast ‘sian Nations ‘ŽE‘N„ wi he exorts… which have een damened y the economic sowdown in Œhina and downturn in Euroe‡ ›aos has rich enery resources‡ ˆhe diversity of economic deveoment in the reion is refected in a reativey hih incidence of overty in some markets‡ —or instance… desite imressive rowth in recent years… ›aos remains oor and reiant on internationa aid‡ ˆhe ¥nited Nations reorts that ¡¡‡’ of the country’s ouation ive on ess than ¥Ž‚ 1‡2™ er day‡26 ƒower shortaes… oor transort infrastructure… a ow eve of human caita… and corrution have draed on deveoment‡ ”n the other hand… ›aos is aready one of the iest enery exorters in Žoutheast ‘sia and the overnment eieves ony of the enery caacity has een taed‡ ˆhe overnment’s aim is to uid additiona hydroeectric dams and eventuay ecome the “ attery of Žoutheast ‘sia”‡ 26 illennium Development Goals Database… ¥N Žtatistics ‚ivision… 201™ htt://mds‡un‡or/unsd/md/ ‚ata‡asx 1 Swiss Re sigma No 2/2016
˜yanmar has em arked on a series Žince takin office in 2011… the current overnment in ˜yanmar has em arked on of economic and oitica reforms‡ a series of economic and ro†democracy oitica reforms‡ ±ey measures incude adotin a manaed foat exchane rate reime… removin forein exchane restrictions… easin constraints on forein investment… increasin overnment sendin on heath and education… and imrovin eisation‡ ˆhe ¥Ž… E¥ and §aan have a oished most sanctions aainst ˜yanmar… and the ‘ŽE‘N eer states aroved its eection as ‘ŽE‘N chair in 2014‡ ˆhese deveoments have suorted raid economic rowth in recent years: €‚ƒ rew y ‡™ in rea terms in the fisca year endin ˜arch 201™‡ ˜yanmar hed democratic eections for the first time in 2™ years in Novem er 201™… which the oosition Nationa ›eaue for ‚emocracy arty N›‚„ won with an overwhemin ma“ority‡ ‘ smooth transition wi ikey resut in further infow of forein investment and onoin stron economic rowth‡ ªietnam’s anks have recovered from a ªietnam’s short†term economic rowth outook aso remains ositive‡ ˆhe concusion ad de t oad ro em‡ in ‘uust 201™ of the ªietnam–Euroean ¥nion —ree ˆrade ‘reement aonside trade deas within the ‘ŽE‘N Economic Œommunity wi ikey ena e reater market access for the country’s exorts and mitiate the imact of economic sowdown in Œhina‡ In §une 201™… the overnment announced the end of a 4’ ca on forein ownershi in a rane of sectors… which is exected to oen u state†owned enterrises Ž”Es„ for rivatisation… suort forein investment infows… and ena e more investors to enter the country’s caita markets‡ ‘ inerin ro em is the ad de t oad in the ankin sector‡ Nevertheess… as of ‘uust 201™… credit institutions in ªietnam had setted a com ined ªN‚ 424 triion of non†erformin oans Nƒ›s„… or ’1‡2 of the Nƒ›s in existence in Žetem er 2012‡ ˆhe fa in Nƒ›s wi encourae rowth in ank endin… ensurin domestic investment rises aonside forein infows‡ Insurance market outlook Insurance is under†deveoed in Œ›˜ª … ˆhe insurance sector in Œ›˜ª is at an eary stae of deveoment‡ ˆhe market in ªietnam is most deveoed and has the hihest enetration‡ Žimiar to the exerience of other frontier markets… the eary stae of insurance deveoment is ein driven y non†ife insurance‡ ‚emand for ife insurance is emerin… ut ony sowy‡ Table … ±ey economic and insurance indicators of Œ›˜ª… 201™ €‚ƒ… €‚ƒ er caita… €‚ƒ rowth ƒouation… Non†ife enetration… ›ife enetration… ˆota enetration… ¥Ž‚ iion ¥Ž‚ 2016–2020—„ miion in of €‚ƒ in of €‚ƒ in of €‚ƒ Œam odia 1 112¢ ¢‡™ 1™‡6 0‡¡™ 0‡00 0‡¡™ ›aos 12 1¢6¢ ¢‡6 6‡ 0‡44 0‡01 0‡4™ ˜yanmar ¢6 1406 6‡’ ™¡‡’ 0‡0¢ 0‡01 0‡0 ªietnam 1’¢ 2106 6‡6 ’¡‡4 0‡¢4 0‡2 1‡™6 Žource: ”xford Economics… Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ Swiss Re sigma No 2/2016 1’
Insurance in the frontier markets … whie markets are em arkin on ˆhese markets are revisin insurance and reated reuations to ena e faster sector i eraisation and de†reuation‡ rowth‡ —or exame… a new Insurance ›aw in Œam odia took effect from —e ruary 201™‡ In ˜yanmar… where the insurance market has een in state hands since 1’6¡… in 201¡ tweve rivate comanies were ranted conditiona arova to rovide insurance services‡2¢ ¦hie a Œ›˜ª markets aow forein articiation… there is ack of carity over esta ishment rues‡ ˆo date… o a insurers have meaninfu resence in ªietnam‡ Insurers from ‘ŽE‘N mem er states… mainy ˜aaysia and ªietnam… are resent in Œam odia aso‡ ƒremium rowth in sma markets ƒremium rowth in some Œ›˜ª markets is voatie‡ ˆhis is in art due to the is susceti e to are fuctuations‡ sma siŠe of the existin remium ase… which is susceti e to are fuctuations when ma“or insurance ro“ects o ive‡ —or instance… the imementation of are enineerin ro“ects in ›aos ostered non†ife remium rowth in 2012… foowed y shary ower rowth the foowin year‡ Figure Œ 120% ‹ea rowth of tota insurance remiums 100% in Œ›˜ª… 1’’™†201™… 80% 60% 40% 20% 0% –20% –40% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Cambodia Laos Myanmar Vietnam Note: €rowth fiures for Œam odia are ony avaia e from 2012‡ Žource: Insurance reuators… Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ rowth outlook —urthermore… the Œ›˜ª markets stand ˆhe Œ›˜ª economies have enefited from more sta e domestic socio†oitica to enefit from ‡‡‡ environments in recent years and further interation into the o a economy‡ ˆwo other deveoments wi ikey foster stroner €‚ƒ rowth… and aso otentiay act as rowth drivers for the insurance market… the ‘ŽE‘N Economic Œommunity and Œhina’s ”ne ‰et… ”ne ‹oad oicy‡ ASAŠ conomic ommunit‹ … the formation of the ‘EŒ … ˆhe ‘ŽE‘N Economic Œommunity the ‘EŒ„ was formay inauurated in ‚ecem er 201™‡ ˆhe o “ectives are to foster coser economic interation and cooeration amon the 10 ‘ŽE‘N mem er states‡2 ˆhe “ourney started with the sinin of a ƒreferentia ˆradin ‘reement in 1’’¢… and there has een much roress since‡ —or exame… roduct and safety standards have een harmoniŠed… investment areements imemented… and iots introduced to faciitate customs transit‡ 27 “˜yanmar – ‘sia’s ast frontier economy?” sia Insurance Revie, ˜arch 201¡‡ 28 ˆhe 10 ‘ŽE‘N mem ers incude ‰runei ‚arussaam… Œam odia… Indonesia… ›ao ƒ‚‹ ›aos„… ˜aaysia… ˜yanmar… ƒhiiines… Žinaore… ˆhaiand and ªietnam‡ 20 Swiss Re sigma No 2/2016
ˆhe creation of the ‘EŒ wi faciitate free fow of oods… services… investment and skied a our amon the ‘ŽE‘N states… as we as “freer” fow of caita‡ ˆhe Œ›˜ª markets are exected to enefit from the oenin u of new market sements… owerin of non†trade arriers and reater infow of forein direct investment‡ ˆhe enefit to insurance wi e from increased trade and investment fows‡ ‘nd… the exectation of services interation wi ikey drive further harmonisation of insurance reuations in the ‘ŽE‘N reion and create oortunities for cross† order suy of insurance services‡2’ ‡ne Želtƒ ‡ne Road … and the “”ne ‰et… ”ne ‹oad” initiative ˆhe ”ne ‰et… ”ne ‹oad ”‰”‹„ an chamioned y Œhina is another undertakin with otentia to rin a out sinificant enefits to the ‘ŽE‘N economies… in the form of increased trade and investments in infrastructure‡ ˆhe “”ne ‹oad”… or the 21st Œentury ˜aritime Žik ‹oad… wi ikey enefit the ‘ŽE‘N mem er states‡ ˆhe initiative aims to revive one of the historic maritime trade routes… and countries aon the tradin route wi receive sinificant investment in infrastructure in rearation of the exected rowth in trade fows‡ ˜uch has aready een done to suort the uidin of the new Žik ‹oad… incudin the esta ishment of ma“or financia institutions for fundin‡ ˆhese incude the ‘sian Infrastructure Investment ‰ank… the New ‚eveoment ‰ank and the Žik ‹oad Infrastructure —und‡ ‘ccordin to Œhina’s ˜inistry of Œommerce… Œhinese state†owned enterrises invested ¥Ž‚ 10‡¢ iion in the 4 countries aon the ”‰”‹ route durin §anuary†‘uust 201™… an increase of 4‡2 over the same eriod a year earier‡¡0 ”‰”‹ wi invove ma“or infrastructure ˆa e 6 iustrates some of the exected cross† order ro“ects under ”‰”‹‡ construction ro“ects Œam odia… ˜yanmar… ›aos are a invoved as are many Œentra ‘sian markets„‡ ˆhe ro“ects wi ikey oen u new oortunities in enineerin insurance and other ines of usiness e… marine„‡ Table † ƒiot ro“ects Investment destination ˜a“or overseas infrastructure ro“ects €wadar ort construction ƒakistan under ”‰”‹ £am antota ort construction Žri ›anka Œaacity co†oeration an investment vaue ¥Ž‚ 2¡‡6 iion„ ±aŠakhstan Žihanoukvie ort construction Œam odia Indonesia ort construction Indonesia Œhina†›aos†ˆhaiand raiway ›aos and ˆhaiand Œhina†˜yanmar raiway ˜yanmar Œhina†ˆa“ikistan hihway ˆa“ikistan Œhina†ƒakistan hihway ƒakistan Œhina†centra ‘sia natura as ieines ine Œ and ine ‚ Œentra ‘sia Œhina†‹ussia natura as ieines… west ine and east ine ‹ussia Žource: “”n the New Žik ‹oad III”… »inhua… ‘ri 201™° £Ž‰Œ‡ 29 ‰ourne starts – inauguration o the E‹ Economic Œommunit, Žwiss ‹e… ‚ecem er 201™‡ 30 ‘t the same time… ”‰”‹ countries have esta ished 224 forein†invested enterrises in Œhina durin §anuary†‘uust 201™… u ™4‡4 year†on†year‡ Œhina contracted 266™ ”‰”‹ enineerin ro“ects with 60 ”‰”‹ countries durin the same eriod of time… at a tota vaue of ¥Ž‚ ™4‡4 iion‡ Žee “Œhinese Žtate†”wned Investment in “”ne ‰et… ”ne ‹oad” Œountries ¥ 4‡2 ¼ear†on†¼ear”… Œhina Go broad, ”cto er 201™… htt://www‡chinaoa road‡com/en/artice/chinese†state†owned†investment†in†one† et†one†road†countries†u†4†2†year†on†year Swiss Re sigma No 2/2016 21
Insurance in the frontier markets Žouth ‘sia: ‰anadesh… ƒakistan and Žri ›anka ˆhere are ¡¢0 miion eoe in ‰anadesh… ƒakistan and Žri ›anka are home to ¡¢0 miion eoe‡ ˆhey are ‰anadesh… ƒakistan and Žri ›anka‡ midde†ow income markets… with hihest er caita income in Žri ›anka at more than ¥Ž‚ ¡600 in 201™„‡¡1 Economic rowth has remained fairy ro ust in the ast decade… averain at around 6 in Žri ›anka and ‰anadesh… and 4 in ƒakistan‡ Figure 1‘ ‰anadesh… ƒakistan and Žri ›anka Pakistan Sri Lanka Bangladesh Žource: Žwiss ‹e‡ Table ˆ ±ey economic and insurance indicators of Žri ›anka… ƒakistan and ‰anadesh… 201™ €‚ƒ… €‚ƒ er caita… €‚ƒ rowth ƒouation… Non†ife enetration… ›ife enetration… ˆota enetration… ¥Ž‚ iion ¥Ž‚ 2016–2020—„ miion in of €‚ƒ in of €‚ƒ in of €‚ƒ ‰anadesh 1’1 11’ 6‡2 161‡0 0‡1’ 0‡™¡ 0‡¢2 ƒakistan 26™ 1400 ™‡™ 1‡’ 0‡2¢ 0‡™4 0‡2 Žri ›anka ¢ ¡62¡ 6‡™ 21‡6 0‡™ 0‡4 1‡06 Žource: ”xford Economics… Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ conomic deeloment ˆheir economies have erformed we ˆhe near†term economic outook for these countries is uncertain iven the sowdown in the ast decade … in Œhina… the current stron E Nino affectin aricutura outut… and financia voatiity foowin the first ¥Ž interest rate rise in ‚ecem er 201™‡ —or instance… weakenin exorts and a sowdown in remittances ed to a dou in of Žri ›anka’s current account deficit in the first haf of 201™ from the revious year‡ £owever… these markets have aso enefited from the shift of manufacturin roduction from Œhina to other… incudin these… ower†cost ocations‡ … ut now face headwinds‡ ”ver the oner term… ‰anadesh has the otentia to achieve hih rowth… assumin numerous structura issues are resoved‡ ˆo this aim… the overnment is taretin a 2’‡™ increase in tax revenue in 201™/16 to imrove fisca sustaina iity‡ ˆhe medium†term outook for ƒakistan deends on structura and economic reform aso… ut needs oitica sta iity and an imrovin security situation‡ ‰usiness and consumer confidence must e ostered to foster rivate investment‡ Žuort from mutiatera aencies ike the I˜— and ‘sia ‚eveoment ‰ank aon with access to the internationa caita markets wi he‡ Žri ›anka… meanwhie… has enefitted from the eace dividend and oitica sta iity since the end of the civi war in 200’‡ ˆhe economy achieved averae annua rowth of ¢‡¡ etween 2010 and 2014‡ £owever… sowin exorts and risin fisca deficits are current chaenes‡ 31 —or the current 2016 fisca year… the ¦ord ‰ank defines midde†income economies as those with ross nationa income €NI„ er caita of more than ¥Ž‚ 104™ ut ess than ¥Ž‚ 12 ¢¡6‡ 22 Swiss Re sigma No 2/2016
Insurance market outlook Insurance is under†deveoed… and ˆota remiums coected in 201™ raned from ¥Ž‚ 0‡ iion in Žri ›anka to reuations are ein tihtened‡ ¥Ž‚ 2‡¡ iion in ƒakistan‡ ”vera insurance rowth in the three markets averaed ‡ in nomina terms etween 200 and 201™‡ ƒenetration is ow… refectin the eary stae of insurance deveoment‡ ¦hie non†ife is more deveoed in Žri ›anka… in ‰anadesh and ƒakistan enetration is hiher in ife than in non†ife insurance‡ ‘art from ow incomes… overnment initiatives and reuatory chaenes are constrainin enetration‡ In Žri ›anka… overnment rovisions of free heathcare and education… and a ension scheme for u ic†sector emoyees… have reduced the incentive to sin u for rivate insurance‡ ‘t the same time… insurers are facin ressures to meet various new reuatory rešuirements… incudin hiher aid†u caita… the sittin of comosite usinesses and the introduction of a risk† ased caita reime in 2016‡ In ƒakistan… a ow aid†u caita rešuirement has ed to a are num er of smaer ayers which ack the resources to invest in underwritin and distri ution‡ Nevertheess… there coud e market consoidation with the endin rešuirement to increase aid†u caita to ƒ±‹ ™00 miion for non†ife comanies… and ƒ±‹ ¢00 miion for ife ayers… y ¡1 ‚ecem er 201¢‡ In addition… a hih eve of unaid remiums mainy in non†ife„ remains a concern‡ ˆhe ‰anadeshi market is simiary ouated y many sma ayers‡ —or instance… there are ¡0 ife insurers with the ma“ority writin ess than ‰‚ˆ ™00 miion ¥Ž‚ 6‡1 miion„ in remiums‡ Œonsoidation is ikey once new rues for sovency and caita take effect‡ ‡ortunities ˆhere is a rane of oortunities in these Insurance rowth in these Žouth ‘sia markets wi continue to derive suort markets… a sent disrutive drivers‡ from sta e economic rowth… averain ™†¢ over the next five years‡ ”ther fundamentas… incudin hih natura catastrohe exosures… increasin ur anisation and a risin midde income cass… wi add to demand for insurance‡ ˆhe imementation of hiher caita and sovency standards amon other reuatory measures… wi he to imrove market efficiency and encourae consoidation‡ Figure 11 Non-life insurance ‹ea rowth of insurance remiums in ‰anadesh… ƒakistan and Žri ›anka… 30% 200’–201™E… Sri Lanka 20% Pakistan 10% Bangladesh 0% –10% 2009 2010 2011 2012 2013 2014 2015E Life insurance 30% 20% 10% 0% –10% 2009 2010 2011 2012 2013 2014 2015E Bangladesh Pakistan Sri Lanka E ¯ estimates‡ Žource: Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ Swiss Re sigma No 2/2016 2¡
Insurin the emerin and frontier markets Insurers have a on history of investin €o a insurance comanies are no straners to frontier markets‡ ˜any esta ished in frontier markets‡ emerin markets were considered “frontier” when o a ayers first set foot in them‡ ˆhere have een successes… and aso withdrawas when thins have not one to an‡ ˆo reaise the otentia of these markets necessitates a on†term stratey‡ Insurers enter frontier markets in art to ain the “eary†mover” advantae‡ ˆhe aim is to e we†ositioned when the markets reach the critica midde†income threshod when consumers and usinesses start uyin more insurance‡ ˆhe tyica rowth ath of insurance in ˆhe rowth of insurance in frontier markets features some common atterns‡ frontier markets has imications for entry ¥nderstandin these is critica to definin an insurers’ entry and oeratin stratey‡ and oeratin strateies‡ ̤ Non†ife insurance in frontier markets usuay makes u the ier art of remiums in the eary stae of deveoment‡ In non†‰‹IŒŽ emerin markets… non†ife accounted for 60‡ of tota remiums in 201™‡ In comarison… in the more deveoed ‰‹IŒŽ countries… non†ife remiums were 41‡6 of the tota‡ ̤ ˆhe share of ife remiums increases as insurance enetration rises‡¡2 Œhina is a strikin exame: non†ife accounted for amost a remiums in 1’0 ut “ust ¡1‡2 in 200¡… shorty after its accession to the ¦ˆ”‡ ̤ In non†ife insurance… commercia motor… roerty… fire and marine… aviation and transort ˜‘ˆ„ ines are usuay the first to deveo‡ €rowth in ersona ines comes ater‡ ̤ ˆhe non†ife market is tyicay more framented and ife more concentrated‡ ˆhe eve of concentration wi increasiny deend on reuation… incudin the introduction of more strinent sovency caita rešuirements in frontier markets‡ Insurers can aso face scaa iity In addition… scaa iity can e chaenin… iven the sma siŠe of markets in chaenes in frontier markets‡ eary stae of deveoment‡ In some cases… insurers focus on a rou of reiona markets rather than “ust one country to ower usiness costs… and take advantae of other economies of scae‡ ›everain technooy and new usiness modes e… coa oratin with N€”s to suort micro†insurance rorams„ are other otions to uid scae‡ 32 ˆhere are… as aways… excetions‡ —or instance… non†ife insurance remains the dominant force in ‹ussia… and India has had a stron ife sector since the eary stae of insurance deveoment‡ 24 Swiss Re sigma No 2/2016
Entry stratey Entry stratey wi hine on the unišue —rontier markets can enefit from increased articiation of internationa insurers… characteristics of each market‡ oth in terms of underwritin caacity and technica exertise‡ ‘ critica šuestion when considerin enterin a new market is the feasi iity of oin in aone… in artnershi with a oca carrier or acšuirin an existin oca firm‡ ˆhe choice is continent on oca reuatory reimes… in articuar with reards to forein ownershi‡ ˜any emerin and frontier markets sti have restrictions on forein entrants throuh rešuirements on maximum forein sharehodins or “oint venture rešuirements‡ Even some esta ished emerin markets retain certain restrictions‡ ‘cšuirin a oca ayer can he the ‘ entry routes have advantaes and associated risks‡ Žome insurers are rowin incomin forein insurer to “hit the oranicay as we as throuh acšuisition in frontier markets… as ‘ianŠ… for exame… round runnin”‡ has done to increase its resence in ‘sia… the ŒEE and ›atin ‘merica‡ ”ther exames are ‘»‘’s recent acšuisition of ™1 stake in Œoatria’s insurance ¡¡ oeration in Œoum ia and ƒrudentia’s acšuisition of ¥andan comany €odstar ›ife ‘ssurance‡¡4 ‘cšuisition of existin insurers rovides forein insurers an aready† esta ished atform in the oca market… which aows them to “hit the round runnin”‡ £owever… a startin chaene is that the insurance sectors in emerin markets tend to e reativey concentrated… and the est erformin insurers are ess ikey to e u for sae‡ ‘ more reaistic aroach is to acšuire a medium†siŠe second tier ayer with otentia for imrovement‡ ‰ut then interatin the new comany into the insurer’s o a oerations resents further chaenes… such as deain with eacy ortfoios and roer vauations of oca assets… articuary in view of the innate voatiity of smaer markets‡ §oint ventures and distri ution §oint ventures with oca artners or tie†us with distri ution networks can aso e artnershis are often emoyed to used to esta ish a resence in emerin and frontier markets‡ ˆhis otion rovides ta existin distri ution caa iities‡ the forein entity a stron oca rand name… market exertise… oca skis to tacke ocation†secific o staces more smoothy… and wide consumer reach‡ ‘»‘’s move ¡™ into Indonesia and ˜aaysia … and ¹urich Žantander’s ife distri ution arranement ¡6 in ›atin ‘merica are exames of o a insurers everain oca artners to esta ish themseves in new markets‡ £owever… in this mode the forein artner sti faces interation chaenes inked to cutura differences and ease of doin usiness‡ ‘t the same time… the strateic interest of the oca artner can divere from that of the forein artner… creatin deay in decision makin and otentiay erosion of rand vaue‡ 33 Ž to c‘uire „ƒ’ o Œolpatria’s Insurance Operations and Enter the Œolombian arket, 11 Novem er 201¡… ‘»‘… htt://www‡axa‡com/i /en/i rary/r/rou/201¡/144¢‡asx 34 Prudential plc ac‘uires Goldstar ”ie ssurance in •ganda… 2¡ §une 201™… ƒrudentia… htt://www‡rudentia‡u/media/ress†reease/201™†06†2¡/¡26/ 35 Ž and bank andiri in –oint —enture to develop General Insurance ˜usiness… ‘»‘… ‘ri 2011… htt://www‡axa†ins‡com‡cn/™2¢/en/±now†us†‰etter/‘»‘†News/‘»‘†and†‰ank†˜andiri†in†§oint† ªenture†to†deveo†€enera†Insurance†‰usiness 36 ™urich and antander announce longterm alliance in ”atin merica… 22 —e ruary 2011… ¹urich —inancia Žervices €rou… htts://www‡Šurich‡com/en/media/news†reeases/2011/2011†0222†01 Swiss Re sigma No 2/2016 2™
Insuring the emerging and frontier markets Technolog‹ as a disrutie force in emerging and frontier markets ˆhe use of technooy can he faciitate ˆechnooy is ein used y insurers to simify rocesses across the vaue chain… insurance enetration in frontier markets‡ from desinin simer roducts… everain new sources of data for marketin… artnerin with fin†tech ayers in distri ution… and usin advanced anaytics in caims rocessin‡ In this way… technooy is acceeratin the deveoment of the insurance usiness in emerin and frontier markets… such that what took many years of deveoment in the advanced markets is ein comressed into “ust a few years in the emerin territories‡ ˆhis can suort increased insurance enetration in the emerin and frontier markets… and he domestic and forein ayers esta ish a footrint there‡ Figure 12 ƒroduct ˜arketin ‚istri ution New usiness Œaims ˆhe use of technooy in the insurance deveoment and vaue chain underwritin ̤ Žimified ̤ ŒustomiŠed ̤ ˜ake rura ̤ ‘ternate data ̤ ‘naytics to roduct marketin distri ution for instant uncover fraud desin and verification rins and sementation ̤ Issue oicy socia ̤ ‘fforda e without fiin ̤ Eectronic networks index† ased ̤ ‘orithms to aication coection of insurance anayse forms documents ̤ ‚rones mo ie data ̤ ‘naytics varia es ̤ ˜ix diita ̤ ¦eara e ̤ ‰iometrics… driven saes with devices identity roducts to ̤ Žtart†u hih†touch atforms coe with enaement saes unišue risks Žource: Žwiss ‹e Economic ‹esearch Ÿ Œonsutin‡ ˆhe use of mo ie technooy can he Žimified roduct desin: Insurers in frontier markets are usin mo ie technooy insurers to identify and reach otentia to deveo sime roducts to et initia access to customers‡ ˆhey offer ife or cients… … heath insurance ased on monthy airtime usae on a mo ie†service account‡ ˆhe coverae may initiay e ow… ut it hes insurers identify cients who coud otentiay send more money on insurance as disosa e incomes rise‡ Œro insurance is aso an area rie for diita innovation… with insurers ike ‘cre ‘frica offerin mo ie† ased index insurance y artnerin with mo ie oerators and ari usiness‡¡¢ —irms are aso exorin the feasi iity of coectin accurate weather data usin mo ie†ena ed sensors em edded in soar†owered ihtin systems‡¡ —inay… new roducts are ein deveoed for some risks confrontin emerin and frontier†market‡ —or exame… insurers reortedy an to offer cover for diseases ike E oa in Žu †Žaharan ‘frica y 201¢‡¡’ 37 ‘‡ ¦is and N‡ ƒshenichnaya… “˜icro†Insurance in ˜o ie ‘ricuture”… G , 201™… htt://www‡sma‡com/mo iefordeveoment/w†content/uoads/201™/0™/ ‘Œ‹E†‘frica†—ina†‹eort‡df 38 —irtual eather vanes in šena, Žwiss ‹e… 2¡ ‚ecem er 201™… htt://www‡swissrefoundation‡or/ what½we½do/o a½rorammes/socia½entrereneurshi/ªirtua½weather½vanes½in½±enya‡htm 39 E‡ ‹asmussen… “Insurance aainst disease out reaks for ‘frica”… ciDev›‹et, 2™ ˜arch 201™… htt://www‡scidev‡net/su †saharan†africa/disease/news/disease†out reaks†africa‡htm 26 Swiss Re sigma No 2/2016
… connect with reviousy difficut†to† New modes of distri ution: Insurers are everain diita atforms to enhance their reach cients… … reach… articuary in rura areas‡ ˆoday… 60 of insurers in Nieria use Interswitch’s 40 diita atform for insurance distri ution or other services‡ ˆeecoms firms wi ikey remain stron distri ution artners for insurers in emerin and frontier markets iven consumer trust in the rands‡ —or exame… in €hana… research y Œonsutative €rou to ‘ssist the oor Œ€‘ƒ„ showed that ¢0 of consumers 41 refer to uy insurance from a mo ie oerator as oosed to an insurer‡ … and faciitate and simify the New usiness and underwritin: ¥sin €ƒŽ… ce tower trianuation… cameras underwritin rocess‡ or iometric data… insurers can verify identity and ocation‡ In ‰anadesh… €rameenhone has information on its customers’ famiy mem ers throuh its “—riends and —amiy” diain feature‡ ƒartner insurer Nirvoy ›ife cross†references 42 this data to verify the deendents for ife insurance ans‡ Insurers are aso usin eectronic coection of documents to seed u customer reistration and reconciiation of documents‡ ¦eara es too are makin their way into the consumer sement and wider usae can he rovide more data for risk assessment‡ 40 ˜‡ ‘naesoronye … “‰rokers… aents at risk as technooy redefines insurance sector”… ˜usiness Da, 2¢ §uy 201™… htt:// usinessdayonine‡com/201™/0¢/ rokers†aents†at†risk†as†technooy†redefines† insurance†sector/ 41 §‡ ›each… ”essons ”earned rom Digital icroinsurance ‘printers’… Œ€‘ƒ, 02 §uy 201™… htt://www‡ca‡or/ o/essons†earned†diita†microinsurance† E20’srintersE20’’ 42 ‹‡ ˜ohan… Œan Technolog Push icroinsurance ˆurtherž Ÿ Reasons to a ¡es… Œ€‘ƒ, 0 ˜ay 201™… htt://www‡ca‡or/ o/can†technooy†ush†microinsurance†further†4†reasons†say†yes Swiss Re sigma No 2/2016 2¢
Insuring the emerging and frontier markets ƒroduct and distri ution strateies ˆhere is no “one†siŠe†fits†a” aroach ˆhere is no “one†siŠe†fits†a aroach” for exansion into the emerin and frontier for enterin frontier markets‡ markets‡ ˆhe diversity of insurers’ strateies demonstrates the imortance of ayin attention to the unišue socio†economic… reuatory and cutura characteristics of different markets‡ ±ey characteristics to aue incude: ̤ ‘wareness of financia roducts in enera… and insurance in articuar… is ow in the frontier markets‡ ‘ ack of financia iteracy is most rominent in rura areas‡ Œonsumers may not understand the vaue and enefits of insurance‡ ‚emand is mosty driven y comusory rešuirements ike ˜ˆƒ› cover‡ ̤ ‘fforda iity is crucia‡ ƒroducts which are ouar in mature and advanced markets may not e suita e for emerin and frontier markets‡ ˆhis can imit demand for risk roducts in the atter… ut consumers may nonetheess e interested in insurance as a savin and investment vehice‡ ̤ —ramented markets… articuary in countries with ow eves of ur anisation… increase the difficuty of reachin rura areas where the ma“ority of eoe tyicay reside‡ ̤ ˆhere are aso oerationa issues… incudin a ack of underwritin data as the socia and demorahic andscae chanes raidy‡ ƒroducts are taiored to meet customer Insurers face a unišue com ination of chaenes when enterin emerin and rešuirements in different emerin and frontier markets‡ ˆo tacke the ack of consumer awareness around enefits of frontier markets‡ insurance… and aso the rice sensitive nature of the markets… some insurers adot an a†in†one roduct stratey aroach to offer comrehensive rotection and savins otions‡ In ess deveoed markets… sime roducts with hih afforda iity can e more successfu‡ ”f ate… sime… interated savin and rotection covers have een ecomin more ouar… whie riders are offered for various ife events to address customer’s different rotection needs‡ —or exame in ˜exico… ˜et›ife ses a sime 4¡ universa ife roduct… ut with 1 otiona riders for different ife events‡ Investment remains a key theme for ife Investment and savins remain a key motivation for the urchase of ife insurance in insurance in these markets‡ emerin and frontier markets… as refected in the ouarity of “return of remiums” and investment uarantee features in ife and heath roducts‡ Even in reativey advanced markets with deveoed ešuity markets ike ˜aaysia… Indonesia… ˆhaiand and some ŒEE markets… the roduct mix is shiftin towards unit†inked roducts with ow uarantees‡ ˆhese are deemed more caita efficient with hiher marins and shorter ay ack eriods… and can aso cater to a cient’s investment needs‡ In distri ution… aents remain the main ‘s in advanced markets… an insurer’s distri ution stratey is critica‡ ˆo exand channe in many frontier markets … their reach… many insurers in emerin and frontier markets emoy a muti†channe distri ution aroach‡ In many countries… aents remain revaent owin to their reach in tier two and three cities‡ ‘ttractin oca taent in the aency framework is a core art of stratey… and insurers have een investin in increasin aent roductivity throuh trainin and education‡ In many markets there has een a nota e shift to ancassurance… which has ecome one of the fastest rowin channes‡ ”nine channes are aso ein used‡ 43 ”atin merica Investor Da presentation, ˜et›ife… 11 ˜arch 201™… htt://www‡sec‡ov/‘rchives/ edar/data/10’’21’/00011’¡12™1™06416/d™2¡6dex’’1‡htm 2 Swiss Re sigma No 2/2016
… whie ancassurance is emerin as an ‰ancassurance is widey seen as the key ena er of rowth‡ ˆhis has een the case aternative‡ ost the o a financia crisis… after which many anks withdrew from insurance roduct desin to focus on distri ution‡ Insurers are ookin to otimise new and existin artnershis to enerate additiona saes with oca and internationa anks with stron rand vaue and wide distri ution networks‡ —or exame… with this aim ‘»‘ has artnered with ˜andiri in Indonesia… ˜etro ank in ƒhiiines and 44 ¥krŽi ank in ¥kraine‡ Žimiary… ‘I‘ has “oined forces with ŒI˜‰ and ‰Œ‘ in 4™ Indonesia… ‰ƒI in ƒhiiines and ƒu ic ‰ank in ˜aaysia‡ ‰oth ife and non†ife roducts are ein sod throuh anks… ut most are ife and heath services‡ —or instance… ‘»‘ is sein rotection with savins in ˆhaiand and unit inked savins 46 with rotection in Indonesia‡ It is aso taretin new customers ike Ž˜Es for commercia insurance‡ ‚irect and diita distri ution is emerin ˜any frontier markets have a are tech savvy miennia ouation… and insurers raidy‡ have started to work on their diita infrastructure to everae this oortunity‡ ˆhe aim is to make use of direct diita distri ution channes ike teemarketin and onine saes to increase consumer reach and enaement… whie aso rovidin vaue added services‡ —or exame… ˜et›ife states that direct marketin is one of 4¢ its strateic rowth initiatives in ›atin ‘merica‡ It aso sees sinificant oortunity 4 for direct marketin in ŒEE and the ˜idde East‡ ˆhe a iity to utiise technooy can aow emerin markets to eafro insurance deveoment‡ Žuch as in India… where insurers have increased saes of term†ife roducts makin use of ehavioura economics concets to steer more “cicks” and utimatey hiher take†u of ife rotection roducts‡ earnings from Argentina Insurers have withdrawn from emerin €o a insurers have esta ished themseves in many emerin and frontier markets… and frontier markets due to oerationa… ut there have aso een incidences of withdrawa from markets due to oerationa… reuatory and oitica reasons‡ reuatory and oitica reasons‡ Žuch has een the case in ‘rentina… where deterioratin domestic macroeconomic conditions have created a chaenin oeratin environment for re/insurers… eseciay forein ones‡ ˆhey have faced oitica and economic insta iity… exemified y dou e†diit infation and soverein defaut… as we as severa market restrictive measures introduced durin the ±irchner 200¡–200¢„ and —ernandeŠ 200¢–201™„ administrations‡ Exames of such state interventions in the re/insurance market incude: In ‘rentina… worsenin economic ̤ ‹eforms to the rivate heath insurance system assed in 2011 that extended conditions and state intervention created enefits for oicyhoders and outawed the denia of insurance owin to an severe chaenes ‡‡‡ aicant’s ae or re†existin medica conditions° ̤ —orced reatriation of forein assets and minimum rešuirements for investments in state†directed infrastructure and “roductive ro“ects”… such as those of the recenty nationaised oi and as roducer ¼ƒ—° ̤ ˆhe whoesae nationaisation in 200 of rivate ension funds and eimination of rivate ension fund administrators° ̤ ˆiht restrictions on cross† order reinsurance‡ ˆhis incudes a imit to 40 of tota cessions to affiiated comanies‡ 44 Investor Da presentation, ‘»‘ ‘sia… ¢ Novem er 2012‡ 45 I Group ”imited Interim Results nalst ˜rieing Presentation Transcript, ‘I‘… 24 §uy 201™‡ 46 “Žavins and ‹etirement”… Investor Da presentation… ‘»‘… 20 Novem er 2014‡ 47 ”atin merica Investor Da presentation, ˜et›ife… 11 ˜arch 201™‡ 48 Investor Da presentation, ˜et›ife… 2012‡ Swiss Re sigma No 2/2016 2’
Insuring the emerging and frontier markets … eadin to a u in new entrants in the ˆhese factors have discouraed entry y forein re/insurers into ‘rentina… and insurance sector‡ in some instances… rovided the imetus for exit‡ No o a forein insurers have entered the market since ˆaanx acšuired ›’¥nion de ƒaris in 2011… and three have exited‡4’ ™0 ŒN‘ eft ‘rentina in 2010… foowed y ›i erty Internationa in 2014‡ ›oca carriers icked u the difference… rowin their market share from 4™ of remiums in 200’ to ™¡ in 201™‡ ˆhe imact on the reinsurance market has een more ronounced‡ ˆhe restrictive measures introduced in 2011 resuted in a decrease of market concentration – the share of the to ™ reinsurers fe from ™¢ in 2011 to 4’ in 2014… – and a shift in favour of oca reinsurers‡ ˆhe restrictions have aso reinforced a decades†on trend of market exit… with the num er of reinsurers fain from 1¡¡ in 2012 to 10 in 2014‡ Žti… insurers wi continue to caitaise ˆhe ‘rentina exame hihihts the innate uncertainties and risks of emerin on the rowth oortunities in emerin and frontier markets… as we as the itfas‡ ‘nother exame is Œhina… where forein ™1 and frontier markets‡ insurers have market shares of “ust 2‡2 in the non†ife sector and ™‡ in the ife‡ £ere too… eorahic and ine†of† usiness restrictions… as we as stron domestic cometition… have imited forein enetration‡ £owever… these markets can sti offer sinificant scae and uift to insurance remium rowth‡ ‘nd o a insurers are seekin to enter the markets… takin advantae of increasiny i era entry reimes… such as in the frontier markets of Œam odia… ˜yanmar… Œoom ia and ƒeru‡ 49 §‡ ƒorter… “ˆaanx comra unidades de ›’¥nion de ƒaris y usca más adšuisiciones en ›atinoamérica”… ˜‹mericas, ™ ‘ri 2011… htt://su scri er‡ namericas‡com/Žu scri er/es/news/seuros/ taanx†comra†unidades†de†union†de†aris†y† usca†mas†adšuisiciones†en†atinoamerica 50 ±‡ ›oneran… “›i erty vende activos de seuros en ‘rentina a ±ranos Œaita”… ˜‹mericas, 14 ˜arch 2014… htt://su scri er‡ namericas‡com/Žu scri er/es/news/seuros/i erty†vende† activos†de†seuros†en†arentina†a†kranos†caita… and: §‡‘‡ ‘ arca… “À‰E adšuiere ŒN‘ ‘‹ˆ y avanŠa a tercer uar de a industria”… ˜‹mericas, 1¡ ˜ay 2010… htt://su scri er‡ namericas‡com/Žu scri er/ es/news/seuros/À‰E½adšuiere½ŒN‘½‘‹ˆ½y½avanŠa½a½tercer½uar½de½a½industria 51 —iures refer to 2014‡ Žee nnual Report o the Œhinese Insurance arket, ŒI‹Œ… 201™‡ ¡0 Swiss Re sigma No 2/2016
Œoncusions Emerin and frontier markets are ma“or ˆhe emerin market countries have diverse economies at different staes of drivers of o a insurance usiness deveoment‡ Œoectivey… they reresent a ma“or share of o a outut and their rowth‡ contri ution wi increase in the comin decades‡ ‘s such… o a insurance rowth wi increasiny e driven y deveoments in the emerin markets‡ ‘art from the stron erformance of the ‰‹IŒŽ and other esta ished emerin markets… there is aso usiness otentia in smaer frontier markets‡ —rontier markets in ŽŽ‘… ŒIŽ and —rontier markets are reativey sma and ess deveoed than esta ished and are emerin ‘sia are exected to emerin markets‡ £owever… individua markets or ocs of economies can sti offer outerform in the mid to on term‡ sinificant scae and uift to insurance remium rowth‡ ˆhere are cear drivers that wi ikey roe faster insurance deveoment in some markets‡ In ŽŽ‘… deveoment of natura resources and economic rowth wi fiter throuh to increase insurance enetration‡ In other ŽŽ‘ countries… such as ±enya… a soid reuatory framework and new technooies are drivin rowth‡ ˜eanwhie in Žoutheast ‘sia… Œam odia… ›aos… ˜yanmar and ªietnam are set to enefit from the formation of the ‘ŽE‘N Economic Œommunity and the imementation of Œhina’s ”ne ‰et… ”ne ‹oad ”‰”‹„ initiative… which wi aso resent new insurance oortunities‡ ˆhe ”‰”‹ wi enefit some ŒIŽ economies… incudin €eoria… ±yryŠstan… ˜odova and ¥Š ekistan… which shoud see imrovin rowth aso due to recovery in Euroe‡ In ›atin ‘merica… the radua sreadin of market i eraisation oicies is enefitin the insurance sector‡ ˆhe deveoment of the insurance €o a insurers are seekin to enter the frontier markets… takin advantae of sectors in frontier markets wi foow i eraiŠation of entry reimes‡ ˆhere are some common features to the insurance unišue rowth aths‡ sectors in the frontier markets: ̤ Non†ife roducts tend to dominate in the eary staes of deveoment° ̤ Œommercia insurance eads ersona ines° ̤ ‘ stron emhasis on savins instead of rotection roducts in ife insurance° ̤ ‘fforda iity is a rime consideration° ̤ ›ow awareness of insurance amon the ouation° and ̤ ›ow financia iteracy‡ ˆechnooy can he insurers in frontier ¥nravein these ocation†secific ermutations is key to the success of a o a markets ea†fro to atest roducts and insurer seekin to enter a new frontier market‡ Noteworthy too is that emerin and underwritin technišues‡ frontier markets do not necessariy foow the same insurance rowth ath of the advanced markets‡ ˆhe exerience of some esta ished emerin markets ike India and Œhina shows decades of insurance sector rowth can e comressed into a few years‡ ˆechnooy can aso he the industry ea†fro to the atest roducts or underwritin technišues‡ Swiss Re sigma No 2/2016 ¡1
ƒu ished y: Žwiss ‹e ›td Economic ‹esearch Ÿ Œonsutin ƒ‡”‡ ‰ox Exore and visuaiŠe sigma data on natura catastrohes and 022 ¹urich the word insurance markets at www‡sigma†exorer‡com ŽwitŠerand © 2016 Žwiss ‹e‡ ‘ rihts reserved‡ ˆeehone Á41 4¡ 2™ 2™™1 —ax Á41 4¡ 22 00¢™ ˆhe editoria deadine for this study was 1’ —e ruary 2016‡ E†˜ai: simaÂswissre‡com sigma is avaia e in Enish oriina anuae„… €erman… —rench… Žanish… Œhinese and §aanese‡ ‘rmonk ”ffice: 1¢™ ±in Žtreet sigma is avaia e on Žwiss ‹e’s we site: www‡swissre‡com/sima ‘rmonk… N¼ 10™04 ˆhe internet version may contain sihty udated information‡ ˆeehone Á1 ’14 2 000 ˆransations: €erman: ‚iction ‘€ £on ±on ”ffice: —rench: ithaxa Œommunications Ž‘‹› 1 £ar our ‹oad… ¦anchai Žanish: ˆraductores ‘sociados ªaencia Ž‡›‡ Œentra ƒaŠa… 61st —oor £on ±on… Ž‘‹ €rahic desin and roduction: Œororate ‹ea Estate Ÿ ›oistics / ˜edia ƒroduction… ¹urich ˆeehone Á ™2 2™ 2 ™644 ƒrintin: ˜uticoor ƒrint ‘€… ‰aar ‘uthors: Œarence ¦on ˆeehone Á™2 2™ 2 ™644 Nishant Žinha ˆeehone Á’1 0 4’00 220™ ˆhis reort is rinted on sustaina y roduced aer‡ ˆhe wood used comes from forest certified to 100 y the —orest Žtewardshi sigma editor: Œounci —ŽŒ„‡ ƒau ‹onke ˆeehone Á41 4¡ 2™ 2660 © 2016 Žwiss ‹e Editor in chief ‘ rihts reserved‡ ±urt ±ar… £ead of Economic ‹esearch Ÿ Œonsutin… ˆhe entire content of this sigma edition is su “ect to coyriht with is resonsi e for the sigma series‡ a rihts reserved‡ ˆhe information may e used for rivate or interna uroses… rovided that any coyriht or other rorietary notices are not removed‡ Eectronic reuse of the data u ished in sigma is rohi ited‡ ‹eroduction in whoe or in art or use for any u ic urose is ermitted ony with the rior written arova of Žwiss ‹e Economic ‹esearch Ÿ Œonsutin and if the source reference “Žwiss ‹e… sigma No 2/2016” is indicated‡ Œourtesy coies are areciated‡ ‘thouh a the information used in this study was taken from reia e sources… Žwiss ‹e does not accet any resonsi iity for the accuracy ˆhe authors woud ike to thank —inn ±rüer… or comrehensiveness of the information iven or forward ookin ‘rend ±uenkamff and ‚anie Žtai for statements made‡ ˆhe information rovided and forward†ookin their contri utions on the anaysis of the statements made are for informationa uroses ony and in no Œommonweath of Indeendent Žtates… way constitute or shoud e taken to refect Žwiss ‹e’s osition… ›atin ‘merica and Žu †Žaharan ‘frica in articuar in reation to any onoin or future disute‡ In no event reions… resectivey‡ ˆhanks aso to ¹erina sha Žwiss ‹e e ia e for any oss or damae arisin in connection ¹en for her work on market data anaysis‡ with the use of this information and readers are cautioned not to ace undue reiance on forward†ookin statements‡ Žwiss ‹e undertakes no o iation to u icy revise or udate any forward†ookin statements… whether as a resut of new information… future events or otherwise‡ ”rder no: 2¢0½0216½en
Žwiss ‹e ›td Economic ‹esearch Ÿ Œonsutin ˜ythenšuai ™0 /60 ƒ‡”‡ ‰ox 022 ¹urich ŽwitŠerand ˆeehone Á 41 4¡ 2™ 2™™1 —ax Á41 4¡ 22 00¢™ simaÂswissre‡com