All change: property coming to dominate P&C as premiums double, Swiss Re predicts

“Property will be the new motor of the insurance market, and this is driven by climate change increasing weather-related losses,” according to  Swiss Re. Jérôme Jean Haegeli, group chief economist, delivered the verdict during a virtual press conference, reviewing the reinsurer’s 53rd annual  sigma report, which forecasts a future with both more risks and more opportunities.

The report forecasts a significant expansion of global property insurance premiums over the next 20 years—tripling from $450 billion in 2020 to $1.3 trillion in 2040. Overall, property and casualty (P&C) premiums are forecast to more than double to $4.3 trillion in the next two decades.

In common with other lines, most of the increase will be driven by economic development—particularly in developing countries, with premiums from emerging markets likely to rise from $48 billion in 2020 to $280 billion in 2040, while advanced markets are expected to grow from $402 billion to $993 billion.

Bad weather

However, climate risk is likely to contribute significantly—boosting the climate risk pool by 30 to 40 percent over the period.

“More specifically, for key advanced markets, we expect the weather-related insured cat losses to increase almost 63 percent—mainly through floods, tropical cyclones and fires,” said Haegeli.

In markets such as China, the UK, France and Germany, increases in insured cat losses could be between 90 and 120 percent, he added. “That makes it even more important that we act with urgency and make sure we reach the Paris Agreement targets.”

However, as the research made clear, where there is a risk, there is also an opportunity, with increased risk, urbanisation and development driving insurance uptake. It also argues for greater collaboration between the industry and governments.

The report finds that P&C will “become riskier and more complex” over the next 20 years. Still, it also “paints a picture of opportunity and growth,” said Gianfranco Lot, head of globals reinsurance at Swiss Re, introducing the report.

“It’s exciting because it demands collaboration between governments and insurers, and we see this as an opportunity to make our world more resilient, which is the purpose of Swiss Re.”

“There’s going to be more risk around with the changing nature of P&C, but with more risks, there will also be more opportunities,” added Haegeli.

Upheaval in motor

Despite the growth in property, motor will remain the biggest part of the P&C market in 2040. Premiums are expected to double to $1.3–1.4 billion, bolstered by economic development and rising car ownership in emerging economies. The share of global motor premiums from emerging markets is forecast to rise from 26 to 46 percent in 2040.

However, that’s likely to be offset by decreasing accidents (the result of advanced safety technologies), “shared mobility models”, a shift from private to commercial ownership, and sustainable policies driving greater use of public transport.

“Motor will likely see the biggest transformation of all lines of P&C business,” according to the report.

Set against the rise in property premiums, the report forecasts that motor’s share of total P&C premiums will fall by a quarter, down from 42 to 32 percent over the 20-year horizon. Property’s share will rise from 25 to 29 percent.

Finally, liability insurance will grow modestly as a proportion of the P&C market, from 12 percent to 13 percent. In nominal terms, however, they are likely to more than double, with 2040 premiums expected to reach $583 billion—up from $214 billion in 2020.

Economic factors such as medical expenses, wages, inflation and asset values, societal and demographic trends (including longer lifespans) and legal developments would all have an impact, as would the scope of liability insurance.

Exposures, meanwhile, are shifting towards intangible assets in line with the economy, which could only fuel liabilities.

“If you look at the constituencies of the S&P 500, tangible assets explained about 83 percent of its market cap in 1975. Tangible assets—physical assets, plants and capital—now account for only 10 percent, meaning that 90 percent of the market valuation of the S&P 500 is driven by intangible assets,” said Haegeli. “These estimates have to be treated as the very lowest band.”

Despite the forecasts, Haegeli was cautious about the immediate future for economic growth.

“We shouldn’t mistake today’s economic rebound for a recovery that is sustainable, because it isn’t. More is needed to have a sustainable recovery, which is still a marathon rather than a sprint,” he concluded.