Commercial insurance growth higher in emerging markets, liability lines: Swiss Re

Commercial insurance premiums are growing faster in emerging markets than elswhere, although the United States still remains the largest commercial insurance market globally, suggests a new study from reinsurance giant Swiss Re.

The U.S. accounts for about 40% of the $600 billion global commercial insurance business, according to Insuring ever-evolving commercial risks, Swiss Re’s latest sigma study. That translates to about 41% of global non-life insurance business, the company said.

Japan and China follow the U.S. as the next largest markets, with $35.4 billion and $30.7 billion in premiums respectively, while Canada ranks seventh largest with $13.9 billion in premiums.

“In the last decade, commercial insurance premiums in emerging markets grew an average of 14% per year, expanding two to three times faster than in advanced markets,” Swiss Re noted. During that same period, China grew 32% annually, in large part because of the introduction of mandatory auto liability insurance, the company said.

“Commercial insurance in high-growth markets such as China benefits not only from an expanding economy, but also from increasing penetration, so premiums tend to grow faster than the economy,” Kurt Karl, Swiss Re’s chief economist noted in a statement.

Liability insurance lines in all markets are also growing faster than both property and the economy overall, according to Swiss Re. That’s due in part to a growing service economy (which has greater exposure to liability risks), as well as greater environmental awareness and legislative changes, among other factors, the report said.

Property risks are still on the rise, fuelled by natural catastrophes, the report noted. In 2011, property lines accounted for half of direct commercial insurance premiums written in Brazil and 29% in the U.S., the report suggests.

The move of some manufacturing operations into emerging markets has also made risk management more complex, Swiss Re noted. The nature of property risks has also shifted from property damage to also including contingent business interruption risk (CBI), the report said. Coverage for CBI, however, still remains low, Roman Lechner, co-author of the sigma study, noted.

Going forward, “underwriting income will be the key profit driver,” the company noted. “Commercial insurance profitability is currently under pressure from low investment yields and soft pricing, but economic recovery and rising interest rates should eventually – with some lag – boost profitability.”