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Last Updated : Jul 09, 2020 08:44 PM IST | Source: Moneycontrol.com

COVID-19 Impact: Insurance premium volumes will recover only by 2021, says Swiss Re sigma study

As per the latest Swiss Re sigma report, India's insurance density stood at USD 78 in FY20. The report said that emerging economies will bounce back quicker.

Insurance premium volumes will return to pre-COVID-19 levels by 2021, a sigma study by Swiss Re Institute hopes.

The study said, the sharpest economic contraction since the 1930s will lead to a slump in demand for insurance in 2020, more so for life products, with global premiums expected to contract by 6 percent, than for non-life covers (-0.1 percent).

“The magnitude of premium losses will be similar to that seen during the global financial crisis in 2008-09, even though this year's economic contraction of around 4 percent will be much more severe. Unlike for the global economy, we expect a strong V-shaped recovery in insurance premiums, a remarkable showing considering that the world is currently in the throes of the deepest recession ever,” said Jerome Jean Haegeli, Group Chief Economist at Swiss Re.


The sigma study said, this year's recession will be the deepest since the Great Depression of the 1930s, but it will also be short-lived. The recession will lead to a steep fall in demand for insurance. After growing by 2.2 percent in 2019, global life premiums are forecast to contract by 6 percent in 2020.

Further, the report said that due to prevailing and lower interest rates, savings products will be more affected, while mortality related covers (term plans) will be more stable.

Emerging Asia, led by China, to underpin market resilience through 2021

Swiss Re Institute estimates that total premium volumes in advanced markets (life and non-life) will shrink by 4 percent this year and return to positive growth of more than 2 percent in 2021.

Top 15 insurance

But in the emerging markets, it said that premium growth will remain in positive territory in both years, up 1 percent in 2020 and 7 percent in 2021.

Looking at a long-term view, the sigma report said that the ongoing shift in global insurance market opportunity to emerging Asia and China in particular, will continue.

The report said that excluding medical insurance premiums, China remains on track to become the largest insurance market globally by the mid-2030s.

“By then India, another emerging giant, will also be among the 10 largest insurance markets of the world,” said the report. Right now, India is at the 11th position globally with total premium volume of $106 billion.

Insurance penetration, density flat in India

When it comes to the insurance penetration and density, the figures for India were flat as per the Swiss Re’s sigma report.

Insurance density which is premium per capita stood at $78 (approximately Rs 5,850) in FY20 compared to $ 74 (approximately Rs 5,550). The world average was USD 818 (Rs 61,350 approximately).

Insurance penetration (premiums as a percentage of gross domestic product) stood at 3.76 percent  in India for FY20. Life insurance penetration was at 2.82 percent while that for non-life stood at 0.94 percent.

The world average was 7.23 percent with 3.55 percent for life and 3.88 percent for non-life insurance.

In FY19, India had insurance penetration of 3.7 percent with 2.74 percent for life and 0.97 percent for non-life.

Insurance industry will absorb the earnings shock

When it comes to the pandemic, there has already been a slew of claims related to hospitalisation as well as business losses filed.

The sigma report said that there is uncertainty about what the ultimate claims burden from the pandemic will be, with the mid-point of the range of current estimates from various external and public sources at around $55 billion. However, it added that the insurance industry is very well capitalised to absorb losses.

"The industry's capital position means it should be able to handle the COVID-19 shock. The upper end of the range of total property and casualty claims estimates by most external insurance analysis is $100 billion, similar in scale to losses caused by Hurricanes Harvey, Irma and Maria in 2017, which the industry also absorbed," Haegeli said.
First Published on Jul 9, 2020 08:42 pm