Insurers should prepare for the rise of the emerging global middle class

A huge market for personal insurance — perhaps as much as 1 billion people — is about to emerge in developing countries, and this new global middle class will need to learn all about insurance.

The global growth and transformation of the middle class is one of three megatrends of which Forbes.com is recommending that people be aware.

Two others are the growth of more individualistic capitalism and the rise of the new business ecosystem, noted Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute.

Weisbart presented these trends to a San Diego seminar audience in a slide show entitled, The Past and Future of P/C Insurance.

As the middle class in advanced economies is shrinking, the global middle class is emerging. Whole populations will need to be taught what insurance is, how it works and why an individual would choose one brand over another, Weisbart’s presentation notes.

With regard to the other megatrends, online services — retailers and special-interest community/peer sites — are giving customers and users more control, resulting in a more personalized shopping and information-gathering experience.

Can new technology — through such platforms as Amazon and Apple — set in motion radically different claims apparatus or distribution system?

Also unclear at present is how indications of a hardening market may play out — if at all. Weisbart’s presentation notes there are several criteria to signal a true hard market, none of which seem definitive right now:

• A sustained period of large underwriting losses. This is somewhat in place. Overall, property and underwriting losses exceeded $10 billion in three of the last four years and combined ratios are rising, although these are masked by reserve releases.
• Material decline in surplus/capacity. This isn’t even close to happening yet, Weisbart says, noting the surplus hit a record $565 billion as of the end of March 2011. Some excess capacity may still remain in reinsurance markets.
• Tight reinsurance market. This is somewhat in place, with higher prices in Asia/Pacific, but only modestly improved pricing for U.S. risks.
• Renewed underwriting and pricing discipline. This is not broadly evident, Weisbart notes, adding that commercial lines pricing trends are now modestly rising and there is no broad tightening in terms and conditions.