Megacities & Urbanisation in Asia: Implications for Non-life Insurers Amitabha Ray, Director, Property & Specialty Underwriting, Swiss Re, Singapore Branch, Contents Urbanisation trends & future growth Implications on the non-life insurance sector Outlook and challenges ICRM Symposium 1 2015 Amitabha Ray 1 2
Urbanisation trends and future growth More than half of the world's population now lives in urban areas Urbanisation rate, % 3 4
The future growth of urban population will be driven by emerging markets Growth of urban population, CAGR 2010-2030F The pace of urbanisation in different emerging markets will likely diverge, with deceleration in the more urbanised Latin America and Eastern Europe regions, compared to rapid growth in Asia and Africa. The global urban population is expected to grow by about 1.4 billion between 2011 and 2030...... with more than 90% of the increase coming from emerging markets, including 276 million in China and 218 million in India. Well managed and poorly managed urbanisations produce very different socio-economic outcomes % of urban population and gross national income per capita (in purchasing power parity, PPP) in 2010 5 6
Expanding cities need adequate infrastructure to prosper Additional infrastructure investment by sector in emerging markets (%), and by regions/countries (USD billion), 2010-2030F The benefits of urbanisation increase when adequate infrastructure is in place. Utilities are critical for successful and sustainable urbanisation, while big-ticket infrastructure facilities ( e.g. international airports, mass transit systems etc.) are economically viable only in areas where there is sufficient demand. Global infrastructure investment from 2013 to 2030 is projected to be USD 70 trillion. Of this, 61%, or USD 43 trillion (in 2012 constant dollars), will be in the emerging markets. Sources: Swiss Re Economic Research & Consulting, McKinsey, OECD and Boeing Implications on the non-life insurance sector 7 8
Urbanisation: A growth catalyst for the insurance sector Urbanisation and insurance penetration, G7 and 140 markets In industrialised countries, urbanisation has appeared to fuel growth for insurance products, generating higher insurance density (total insurance premiums per capita). For emerging markets, urbanisation and insurance spending grow together. Insurance opportunities are likely to be substantial as emerging markets become increasingly urban. Sources: Swiss Re Economic Research & Consulting, Population Division, Department of Economic and Social Affairs, United Nations Urbanisation and implications for insurance Economic Social Infrastructure Higher income and wealth drives demand for motor, home and savings products. Industrialisation and higher concentration drives growth of commercial lines. Longevity and reduced inter-generational support will create opportunities for old-age health and pension products. Rise of consumer rights has implications for casualty/liability lines. City lifestyles give rise to urban diseases ; this needs to be reflected in insurance product offerings. New opportunity for commercial insurance during the construction phase of infrastructure projects. Post-construction recurrent insurance demand will likely remain strong, but this will also depend on whether governments act as de facto insurers. 9 Environment Take-up rate of green insurance may increase Many large cities located in areas exposed to multi-natural disasters- to create higher demand for nat cat re/insurance Increasing awareness of city risk management and the benefit of public-private partnership will open up additional opportunities. 10
Personal lines, particularly motor insurance will benefit from urbanisation Motor premiums in USD billions and as percentage of total non-life premiums in emerging markets The accumulation of wealth amongst the urban population drives demand for housing, personal automobiles and other consumer goods. These factors, combined with increased risk awareness, are likely to support higher demand for nonlife personal lines. Despite several challenges, car ownership in emerging markets will increase further due to the higher income and mobility needs of urban dwellers. The growth of the motor sector will vary across the emerging markets. China, India and Indonesia will see stronger growth. Industrialisation and increased spending on infrastructure will expand the commercial insurance market Industrialisation will drive demand for commercial insurance in emerging markets, with small-to-medium enterprises (SMEs) an important component of demand Commercial insurance premiums from infrastructure construction projects could reach USD 68 billion between 2013-2030. China and India are expected to be the key growth markets with a combined share of 50% of these premiums Property coverage requirements for infrastructure facilities will add an annual USD 24 billion (in 2012 constant dollars) in premiums by 2030. Specialty lines, particularly engineering and construction covers, will benefit from infrastructure development 11 12
Demand for natural catastrophe re/insurance will increase with rising value concentration River flood exposure and storm surge exposure in China's Pearl River Delta Source: Swiss Re GEO Services In the future many megacities, particularly in emerging Asia, will be vulnerable to natural catastrophes such as floods, storms, storm surge and earthquakes by virtue of their location... this can lead to significant economic and insured losses, as well as loss of human life. Natural catastrophe insurance presents an opportunity in emerging markets, but also significant challenges e.g. risk accumulation and assessment, unexpected losses etc. Reinsurance can help insurers in emerging markets to manage their capital and catastrophe risks. Flood hot spots - Cities most at risk from river flood worldwide (by number of people affected) River flood exposure and storm surge exposure in China's Pearl River Delta 13 Source: Mind the Risk, Swiss Re publication 2013 Top 3: Pearl River Delta (12.0m), Shanghai (11.7m), Kolkata (10.5m) 14
Summary: impact of urbanisation on different non-life insurance lines (1/2) Summary: impact of urbanisation on different non-life insurance lines (2/2) 15 16
Outlook and challenges The Boon - Urbanisation trends in emerging markets By 2030, around 3.9 billion of the emerging market population will be living in urban areas. Asia and Africa are likely to see the biggest rise in urbanisation rates as well as in urban population (particularly China and India). Urbanisation patterns will differ across markets -- strong planning in some cases while spontaneous organic growth in others. Small and mid-sized cities are expected to grow rapidly in the coming years. Networks of cities are merging to form various types of urban clusters such as mega-regions, urban corridors and city regions. 17 Massive infrastructure investment is required to support urbanisation. Urbanisation will continue to change the nature of emerging market societies, including traditional family structures, higher participation of women in labour force. 18
Urbanisation A Catalyst for insurance sector Commercial insurance is likely to benefit with premiums for construction insurance covers from infrastructure development. The privatisation of risk/infrastructure assets can improve insurance coverage. Specialty business lines (aviation, marine, engineering, construction and liabilities) are also likely to see strong demand in the emerging markets. Demand for non-life personal insurance products (homeowners, personal motor, travel) is likely to grow along with rising income levels and/or policies. The biggest incremental re/insurance opportunity is expected to be in emerging Asia. Urbanisation-led societal changes (smaller families, increase in education and women participation in the workforce) and demographic transition to an ageing population will increase the need for life and health insurance products. Growth in formal employment opportunities in urban areas will boost demand for group life insurance products. Challenges: To insurers Risk of unorganised urbanisation Managing risk accumulation & uncertainties Risk adjusted pricing, poor data quality Increased consumerism leading to litigious societies 19 20
Challenges: Can be managed through. A multi-stakeholder response and increased Public Private Partnerships Private insurers' participation in city risk management Re/insurers focus on city centric and regional strategies rather than simple one-size-fits-all approach. Thank you 21
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