Global premiums set to double in next two decadesCredit: Shutterstock/wael alreweie

Global premiums set to double in next two decades

Global P&C premiums are expected to more than double to $4.3trn in 2040 from $1.8trn in 2020, as the P&C portfolio composition is expected to shift from lower-risk motor insurance towards higher-risk property and liability lines, according to a new study.

Swiss Re Institute’s sigma study, More risk: the changing nature of P&C insurance opportunities to 2040, reveals that property insurance is forecast to become the fastest-growing line of business. Motor, although its share is shrinking, is expected to remain the largest of all P&C lines, with premiums forecast to almost double by 2040.

Property insurance is forecast to grow by 5.3% annually with global insurance premiums rising to $1.3trn in 2040 from $450bn in 2020. Economic development will remain the key driver of rising property premiums, contributing 75%, or up to $616bn, of new premiums. Climate-related risks are expected to result in a 22% increase in global property premiums, or up to $183bn, during the next 20 years as weather-related catastrophes will likely become both more intense and frequent.

Jerome Haegeli, Swiss Re’s group chief economist, commented: “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 policymakers, with whom we share the aim of making economic growth insurable.”

As social inflation is expected to drive up the frequency of large verdicts and settlements, especially in the US, liability premiums are forecast to grow by 4.7% per year on average to $583bn until 2040, from $214bn in 2020. Additional areas of long-term growth potential in liability come from climate change effects, artificial intelligence, and social and legal changes.

As the more volatile property and liability segments are gaining in significance, the share of motor insurance, traditionally a lower-risk and high-volume mainstay segment of P&C, will shrink due to safety improvements from automation and smart technology, and a drop in associated claims.

While the share in the P&C risk pool is expected to shrink to 32% of sector premiums by 2040 from 42% in 2020, motor will remain the largest line of business, with premiums forecast to almost double up to $1.4trn by 2040 from $766bn in 2020.

Gianfranco Lot, head globals reinsurance at Swiss Re, said: “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.”

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