Brokers are always looking for organic growth, but that has been tough to create over the last few years, particularly in countries hardest hit by the financial crisis.
In the United States, organic growth improved in 2012 by an average of 7.6%, says Reagan Consulting. The improvement was due largely to higher premiums and increased demand thanks to an improving economy.
Yet brokers in Europe continue to feel the pinch from a lackluster economy. Those fortunate enough to be in growth markets are seeing a different story, but they still have to convince consumers they need insurance.
So what’s a brokerage that is looking for organic growth to do?
Look outside your borders, just like the big brokerages do. You may not want to set up an office halfway around the world, but you can bet that many of your commercial clients have risks abroad and may be expanding. Picking up that international business can help you grow.
Munich Re’s Economic Research Department recently released a report for the Asia-Pacific insurance market that showed no surprises: The region remains hot. In fact, in recent years that market’s growth has left the Western economies in the dust.
Munich Re found premium income for insurance will double—double!—by 2020. Its premium volume of $1.3 trillion represents nearly half the world’s $2.8 trillion in insurance premiums. Roughly 70% of that revenue comes from China and India. In fact, 50% of the global top-10 primary insurance growth markets for property-casualty and life business will be in the Asia-Pacific region. China, of course, will lead the pack with the highest increase of primary premiums worldwide at least until 2020, followed by the United States and Japan.
You may not want to set up an office halfway around the world, but you can bet that many of your commercial clients have risks abroad and may be expanding.Tweet
For property-casualty insurance, primary premiums will grow an average 11% in emerging Asia, the report says. The three top growth countries for p-c are China, India and Indonesia. Forecasters predict that average annual growth rates for property-casualty in China and India will be more than 12% from 2012 to 2020 and nearly 10% in Indonesia. Just think of the opportunities in a market that will more than double its p-c premium volume by 2020, as Indonesia will.
Growth rates for other emerging markets in the region—Vietnam, the Philippines, Malaysia and Thailand—aren’t too shabby. They range from 6% to 8%.
What’s driving the growth? As the middle class grows, so does the awareness of risk and the need to protect assets. And, as the savings rate goes up, so does the demand for life and health insurance products, Munich Re says. Demand for motor and liability insurance will grow as regulations change and greater consumer protection is needed. At the same time, investment in large infrastructure projects will drive demand for industrial insurance. According to the company, even with a healthy growth rate, the Asian market will continue to be “severely underinsured, especially for natural catastrophes.”
Munich’s GeoRisksResearch underscores the vulnerability of the Asia-Pacific region, which, since 1980, has accounted for 40% of all natural disasters worldwide. In the same period, the region accounted for 45% of all economic losses and 50% of fatalities—but only 18% of all insured losses. This weather-related trend is likely to continue. The report stresses the need for loss mitigation measures—cost-effective ways to protect communities for the long haul.
Looking westward, the Middle East and North Africa (MENA) region is on the verge of a growth spurt. A survey of local and international (re)insurers and brokers by the Qatar Financial Centre Authority (QFC) reports that insurance premiums are expected to grow faster than GDP. The MENA region is underinsured and offers real opportunities, particularly in personal lines and compulsory medical lines.
“The MENA region exhibits above-average GDP growth, even faster insurance premium growth, a young and rising population, low levels of insurance penetration and, in most countries, a rather limited natural catastrophe exposure,” says QFC Authority CEO Shashank Srivastava. “The MENA region is an attractive emerging insurance market which any aspiring international or regional insurer and reinsurer should have on its strategic agenda.”
Qatar’s insurance sector is one of the fastest growing in the world, and the QFC Authority hopes to position it as the “pre-eminent” captive center between Europe and South Asia and eventually one of the top 20 in the world.
On the downside, the market is fiercely competitive, and reinsurance capacity is abundant, which is putting pressure on results and driving up acquisition costs. Survey respondents also noted the lack of adequate insurance regulation and inconsistent oversight. As far as political risks go, those surveyed ranked geo-political risks and political instability at the top of the threat list.
Venturing into emerging markets isn’t for the faint of heart. But it pays off if you have a strategy and pay attention to what your clients are doing and where.