While the rest of the world
struggles, Asia and Latin America offer opportunity.
Organic growth remained elusive for the insurance sector in
2011, particularly in developed markets, such as the United
States and Europe, where economic uncertainty, soft pricing,
weak demand and the costliest catastrophe year in history
weighed heavily on the industry. But the picture is more
promising in Asia and Latin America—the economic hot
spots in the world economy.
The U.S. economy grew at a 3% clip last year (the fastest
rate since 2008), but the recovery was hampered by continuing
high unemployment and the congressional impasse over dealing
with the budget deficit. Looking ahead, the road to recovery
will be rocky, but we’re moving in the right
direction—as long as we aren’t pulled into a second
recession by the European debt crisis.
Brokerages scrambled last year to eke out some organic
growth. The large brokerages grew a modest 2%-4% with some
finding double-digit growth in Latin America. Organic growth
for the smaller agencies was generally flat. Broker revenues
were up compared to the previous year, thanks to growth in
group benefits and commercial lines. But overall growth was
driven by mergers and acquisitions, which picked up
significantly in 2011.
A KPMG survey found insurance executives pessimistic about
our industry’s outlook. The industry’s position is
precarious. Underwriting losses continue to pile up and
reserves used to prop up balance sheets are dwindling. A
pricing turn would help insurers dig out, but when that finally
happens is anyone’s guess.
The Council’s last quarterly Commercial
Property-Casualty market survey did show some price firming,
but an abundance of capacity may suppress rates. Rather than
across-the-broad price increases, expect pockets of
increases—CAT-prone property, for example.
As the U.S. market stagnates, business will look abroad for
growth. KPMG found that 60% of U.S. middle-market executives
plan to expand globally over the next five years, creating new
client demand for insurance overseas.
Europe’s debt crisis
remains a worry for the global economy even after intervention
by world central banks to ease credit. The EU’s bank
problems haven’t gone away, and leaders will have to pull
together to get through it. The fate of the euro and the Union
may hang in the balance. If efforts fail, Europe could be
pulled into a second recession. Europe faces high unemployment,
low growth, low interest rates and a lethargic equity
Insurers and brokers struggle with soft pricing and low
demand for insurance. Watch for more market tightening and a
squeeze on both CAT-driven pricing and capacity, although
capacity remains strong. Reserve releases, which have supported
balance sheets, are running low. Solvency II will pressure
insurers to build capital to meet the new requirements. London
brokerage consolidation is likely to continue as brokers forage
Asia remains a bright spot in
the gloomy global economy. By 2015, the Asia-Pacific region
will amount to 39% of the world’s economy, according to
Ernst & Young. China’s share alone is projected to
surpass all of Europe’s economy in five years and nearly
catch up with the U.S. in the next decade. Excluding Japan,
Asia accounts for about 70% of growth in global demand.
Demand for insurance will grow along with the region’s
economy. Consumers have more disposable income and are buying
more insurance to protect their new assets. Business expansion
will drive insurance demand to protect against growing risk
exposures. Climbing interest rates will have a positive impact
on insurers’ profitability in the region.
The drivers of insurance growth in the region vary. Mature
markets are more saturated than emerging markets, but demand is
still strong. From 1999 to 2009, the average insurance growth
rate was about 12% a year.
Brokers face obstacles in China and India. Foreign
brokerages are still limited to large-scale commercial risk
business in China unless they joint venture with a local
brokerage. India limits foreign investment to 26%. Other
up-and-coming markets include South Korea, Malaysia, Thailand,
Indonesia, Philippines and Vietnam.
Latin America has largely
rebounded from any ill effects of the financial crisis and is
building strength. Brazil leads the insurance market with 40%
of premium volume. Mexico is second. Latin America generates
more than $100 billion in annual premium and is home to more
than 500 million people. As the economy expands, so does
wealth. The growing middle class has more money to spend on
insurable goods, such as cars and homes. To keep up with
economic expansion, countries are investing in infrastructure
projects and building highways, bridges, power plants, airports
and other key structures needed to keep the economy
competitive. Marsh and Willis grew organically in the region by
double digits last year. Brokers looking for growth can tap
into this booming market by leveraging their clients’
expansion into the region.
Kemper is The Council’s Vice President of Industry