Asian urbanization favors insurers

MANILA, Philippines - The world’s urban population will grow by 1.4 billion to five billion by 2030, with 90 percent coming from emerging markets, based on a study by Swiss reinsurance Co. Ltd. (Swiss Re).

China and India will account for 36 percent (494 million) of the total population growth, with the rest of emerging Asia accounted for by Indonesia, Malaysia, Thailand, Vietnam and the Philippines.

Urbanization does not only mean mega cities but also small and mid-sized cities alongside developing urban clusters.

Swiss Re said that mega cities are forecast to grow from 23 to 37 by 2030. And 19 of these mega cities will be in emerging markets, including China and India.

And these developments offer huge opportunities for life and non-life insurers.

Emerging urban populations in emerging urban centers entail infrastructure investments, in these case $43 trillion to 2030, and yield a projected $68 billion in construction cover premiums.

“The development of urban/industrial clusters and expansion of production facilities will likely drive demand for commercial insurance. The aviation, engineering and liability insurance sectors should also benefit,” the study pointed out.

Rising levels of income and asset ownership generated by urbanization should drive strong growth in non-life personal lines, including motor and homeowner insurance.

In 2012, motor insurance accounted for 45 percent of the total non-life premiums written in emerging markets and further growth is forecast, based on an expanding middle class and increased demand for large-scale logistics services.

The main re-insurance opportunity will likely be in emerging Asia, where the urbanization rate is lower than in Latin America and in Central and Eastern Europe.

China and India are expected to account for around half of emerging-market infrastructure-led commercial insurance opportunities.

Swiss Re, which is one of the world’s leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer, said that the life insurance sector stands to benefit too.

The increased levels of education and financial literacy associated with the urban environment relative to rural living can facilitate sales of more complex life insurance solutions such as wealth accumulation and wealth distribution products. 

“Traditional life insurance, such as term life, will also do well as households seek to protect the income flow of the primary breadwinner,” said Kurt Karl, Swiss Re chief economist. “The higher participation rate of women in the workforce empowers a prospective new client segment for life insurance products.”

Then there are likewise huge opportunities for health insurance.

The Swiss Re economist said that the evolving lifestyle habits in urban areas, with an increase in ‘urban diseases’ such as cardiovascular illness, lung cancer and chronic obstructive pulmonary disease, and the greater risk of transmission of communicable diseases in high population density areas, will support strong growth of health insurance.

Demand for long-term healthcare solutions is also set to rise, particularly for an ageing population less able to rely on the younger generation for post-retirement support.

The study likewise pointed to growing environmental issue, from air and water pollution to natural catastrophes.

Swiss Re Property Product Management Asia-Pacific head Gabor Jaimes said that urbanization is leading to enormous concentrations of property values particularly in high growth markets.

“Given the still very low insurance penetration in those markets, this can result in a massive gap between potential economic losses and insurance payout, if such a metropolitan city is hit by a natural disaster. It is important that insurers work with other stakeholders to improve risk coverage to reduce the potential financial burden to governments and individuals arising from natural catastrophes,” Jaimes said.

Global reinsurance can also support local insurers in emerging markets manage capital and risk exposure.

In order to remain solvent, domestic insurers need to have adequate capital or use reinsurance to be able to cope with large-loss events. The report said that risk adjusted pricing is often a challenge for insurers in emerging markets given poor data quality on historic losses and lack of modeling experience on potential risk exposure.