Global insurance premium reached record $4.9 trillion in 2013: Aon Benfield

A risk study released this week by Aon Benfield indicates that relatively light catastrophe losses in 2013 compared with the two previous years helped the property and casualty industry achieve a global underwriting profit last year.

Aon Benfield’s 9th edition of the Insurance Risk Study – entitled Growth, profitability, and opportunity – shows that global insurance and reinsurance premium reached a record US$4.9 trillion in 2013, representing a 0.9% increase over 2012 (driven primarily by growth in the p&c and health insurance segments), while global insurance and reinsurance capital reached a record US$4.0 trillion.

Aon Benfield Analytics forecasts that global p&c insurance premium will increase by 18% over the next five years to reach US$1.6 trillion by 2018, notes a statement from Aon Benfield, the global reinsurance intermediary and capital advisor of Aon plc. “Auto will continue to be the largest line, driven in part by strong growth in China,” the study states.

The study – which reviews insurers’ growth, risk and profitability, as well as highlights emerging risks and opportunities in the global insurance industry –includes Aon Benfield’s view of risk by product line for 49 countries using techniques applied consistently since 2005.

The study further indicates that combined ratios varied significantly by country and reveals many profitable areas of growth. For p&c business, the average insurer combined ratio in 2013 across the top 50 global markets was 99.1%, with 21 markets achieving a combined ratio below 95% and 10 markets achieving a combined ratio below 90%, notes the Aon Benfield statement.

With regard to catastrophe losses, Impact Forecasting, Aon Benfield’s catastrophe model development centre, estimates that insured catastrophe losses totalled US$45 billion during 2013. In perspective, catastrophe losses translated into 3.2% of p&c premium and “global catastrophe load” of 9.9% of property premium, the study states.

The study also includes a “country opportunity index,” which ranks the desirability of the top 50 markets based on a mix of profitability, growth potential and political environment. A chart in the study includes four quartiles – including 13, 13, 12, and 13 countries, respectively – with Canada listed as the 10thcountry in quartile 2. The country’s five-year cumulative net combined ratio is listed as 99.9%, its five-year annualized projected growth rate is 2.9% and its political risk assessment is low.

Aon Benfield reports that Saudi Arabia leads the index with a combined ratio of 91.5% and strong projected growth of 8.1%, followed by the Ecuador and Singapore markets. “The new entrants to the top quartile are all in the Asia Pacific: Hong Kong, China and Australia. China showed the biggest overall increase on the index, driven by a combined ration improvement from 101.7% down to 98.7%,” the study notes.

“There are many bright spots within today’s rapidly evolving insurance marketplace,” Stephen Mildenhall, global chief executive officer of analytics for Aon, suggests in the company statement. “The overall global combined ratio under 100%, and the variation in results by country, clearly show there are many desirable areas for profitable growth in the market today. In addition, the continued flow of cheaper alternative capital into the industry provides a competitive cost-advantage to early-adopters. The potential pay-off to innovation is higher today than it has been for many years,” Mildenhall continues.

One area of innovation is Big Data. “For many insurers, Big Data is the presumed answer to the question of how to grow profitability in an environment with record capital levels,” the statement notes, adding that the study discusses its potentially transformative effectives on the insurance industry.

“Big Data for insurance often really means behavioural data, with the industry engaging in an active search for more detailed and more predictive variables to add to underwriting and price algorithms,” the study explains. “The growth imperative continues to stress many industries, particularly in mature markets. For insurers, the efficiency gains from Big Data often serve to redistribute risks, but not to grow the pie – creating clear winners and losers,” it suggests.

“Big Data is like iron ore: bulky and useless in its raw state. It has to be refined through several stages before it yields up actionable and consumable information,” the study notes. The insurance industry can realize benefits by combining databases and data sources, remapping, recoding, cleansing and normalizing data, and then applying analysis.

“Insights draw out connections and linkages. They suggest patterns, causation and, ultimately, actions for new products, coverages, pricing variables and risk management,” the study adds.

The research also explores emerging trends, including the effects of technology on motor insurance, new capital demands in the United States health insurance market, rising frequency of cyber attacks, and advanced modelling capabilities for China crop insurance.

Other facts from the study include the following:

• 16 countries showed five-year premium growth in excess of 10%;
• property and casualty premium increased 3.5% in 2013;
• property and casualty penetration is 1.9%, marginally down from 2.0%; and
• auto insurance accounts for 46% of p&c premium, while property accounts for 33% and liability for 21%.