The seventh edition of McKinsey’s annual in-depth analysis of the global insurance industry, based on our proprietary Global Insurance Pools database, found the industry in the midst of turbulent times. What factors help explain the industry’s performance? The continuing low-interest-rate environment, a challenging equity market, and tighter regulatory regimes have certainly played a prominent role. Meanwhile, consumers’ shift to hybrid behavior is now largely complete in developed markets and is accelerating in developing markets with the spread of mobile phones. These changes, along with the impact of price-comparison websites, other technology developments, and the race to go digital, are tectonic shifts forcing insurers to adjust their business models.
Mature markets in North America and Western Europe required “heavy lifting” to address these trends. With life eroding and property and casualty (P&C) flattening, the mature markets have exhibited slower growth rates than insurance in emerging markets, and the figures in our report are beginning to reflect these major fault lines by geography and business segment. Indeed, we expect growth’s center of gravity to continue to shift to Asia and other emerging markets, reflecting not only the growth of the consumer middle class in these economies but also a slowdown in P&C growth in mature markets due to unprecedented advances in technology, for example, sensors for safer motor vehicles and risk prevention in homes, offices, and factories. Motor and other traditional P&C lines, both personal and commercial, therefore will likely face a slowing growth in the coming years.
At the regional level, Europe, the Middle East, and Africa (EMEA) recorded moderate growth in the P&C and health-insurance segments, while life is expected to decline. Growth in the Americas region has been characterized by strong progress in health and moderate growth in the P&C segment, while life is expected to be volatile, owing to changes in US regulations—including the US Department of Labor’s fiduciary rule and new US tax guidelines. In Asia–Pacific (APAC), on the other hand, the insurance industry grew in all three segments, with health generating double-digit growth.
At the business-segment level, preliminary reports revealed some important trends:
- Life. Most regions, except the Americas and Western Europe, saw positive life-segment growth in 2016, but the amount of the increase, as well as the factors responsible, varied by region. In a marked departure from 2015, Asian countries such as China, Hong Kong (analyzed as a separate entity), and India achieved the strongest gains. Of all life products, endowments experienced the most growth, mainly driven by emerging Asia and the United State. The key profit indicator—life return on equity—is expected to stabilize at 10 percent going forward.
- P&C. The global P&C insurance industry has remained stable over the past five years, growing at a steady 4 to 5 percent. At the regional level, although the APAC region accounts for only 23 percent of the total P&C market, it has been the major driver of growth, growing at an average rate of 9 percent per year since 2013, and is expected to grow even faster in the future. In contrast, the Americas and the EMEA regions, accounting for 49 percent and 29 percent of the global market, respectively, are expected to grow at a scant 2 to 3 percent over the next two years. Longer term, we believe P&C will see declining if not negative growth, at least in mature markets, due to, for example, safer and fewer cars, as well as more technology for risk prevention in homes and factories. This suggests a further shift of growth to Asia and emerging markets lies ahead.
- Health. In the health-insurance market, the global annual growth rate decreased from 9 percent in 2014–15 to 6 percent and 7 percent in subsequent years. The United States continues to be the biggest contributor to the absolute growth of health premiums globally, driven by the expansion of coverage implemented with the Affordable Care Act. The fastest-growing regional market overall is APAC, mainly fueled by the efforts of companies in China and India to increase health-insurance penetration, with China focusing on its aging population and India on its rural population. Net profit margins in APAC are also the highest globally, led by smaller markets such as Singapore and Hong Kong.
Of course, not all opportunities are open to every player. Insurance companies therefore need to work out their own strategies based on an in-depth understanding of current and future trends so they can re-examine their product mix, geographic focus, and capabilities. Those companies that identify new trends, prepare for change to come, and adjust to the changing landscape may become prominent.
For more, download the full report on which this article is based, Global Insurance Industry Insights: An in-depth perspective (PDF–2.7MB).