As economic development and climate change contribute to a fundamental shift to higher-risk, catastrophe-exposed property lines, global property and casualty (P&C) insurance premiums are forecast to more than double to USD 4.3 trillion by 2040..
According to an industry analysis conducted by Swiss Re Institute, the driving factors in premiums growth rise of more than 50% from 2020’s base of USD 1.8 trillion of global P&C premiums, will be a shift from lower-risk, high-volume motor insurance to higher-risk property and liability lines of business, finds the latest sigma report from global reinsurer Swiss Re.
The research institute projected that within P&C, property would be the fastest growing line over the next two decades, growing by 5.3% yearly with estimated premiums hitting USD 1.3 trillion in 2040 from 2020’s total of USD 450 billion.
Also, Swiss Re predicted that economic development would continue to be the main driver of further property insurance premium expansion, contributing 75%, or up to a huge USD 616 billion of new premiums within the next two decades.
A news report by Reinsurance News on the analysis indicated that over the next two decades, climate change would lead to more frequent and severe weather events, which will also result in greater demand for reinsurance coverage.
Swiss Re analysts also expected climate-related risks to trigger a 22% rise in global property insurance premiums, or up to USD 183 billion during the period.
On the reinsurance implications generally, the analysts predicted that climate change would increase the property risk pool by 30% to 40% over the next 20 years, which in turn will elevate demand for reinsurance as the P&C business becomes riskier and more complex.
Commenting on the research findings, Swiss Re Group’s Chief Economist, Jerome Haegeli, said: “Promoting the conditions for long-term sustainable growth is particularly important in the face of climate change, which poses the biggest long-term threat to the global economy.
“If we are to build a sustainable insurance system that allows society to manage and absorb future risks, we need to make risks and opportunities quantifiable. Our work is also vital for policy makers with whom we share the aim of making economic growth insurable”, the industry expert added.
A further analysis of the findings indicate that premium growth in liability lines of 4.7% per year on average is also expected, “notably in the U.S., social inflation is a real issue and is forecast to result in more frequent large verdicts and settlements, driving liability premium growth to USD 583 billion by 2040, says Swiss Re Institute.
“The company’s latest sigma report explains that the growth in property business over the next 20 years comes at the expense of a decline in the motor business, driven by improvements from automation and smart technology which has reduced the number of claims and their size.
“Swiss Re expects motor’s share in the P&C risk pool to decline to 32% of sector premiums by 2040 from its current 42%, but still expects motor to remain the largest line of business with premiums set to rise by almost 50% by 2040 to USD 1.4 trillion”, the news report added.
In his remarks, Head Globals Reinsurance at Swiss Re, Gianfranco Lot, projected: “With the global portfolio shifting from lower risk motor insurance to higher risk lines, P&C insurance business will become more volatile. At the same time, risk modelling will become more complex, which will lead to higher capital requirements and an increased demand for reinsurance. In this fundamentally different risk environment, reinsurers will play a crucial role in keeping risks insurable.”
