$7 Trillion by 2022? Yep, That’s the Global Insurance Premium Haul, According to Swiss Re

This report from Swiss Re sheds light on the latest trends in global economic recovery following the peak of the COVID crisis.

Good news: The world economy is on the path to a strong recovery following the COVID-19 crisis.

That’s what Swiss Re concluded in its latest World Insurance Sigma report, which ultimately forecasted that global insurance premiums will be approaching the $7 trillion mark by the end of 2022.

In its findings, the report also noted the pandemic had a significant impact on the insurance industry as a whole.

Risk awareness is up. Global health and protection-type insurance premiums grew by 1.9% and 1.7% respectively in 2020, the report found, despite social distancing’s effect on distribution. Insurance demand is estimated to grow by 3.3% by year’s end.

Here are just a few more insights from the report and the factors driving a steady recovery.

What’s Pushing Growth

Acc0rding to the researchers behind Swiss Re’s sigma, the swift deployment of vaccines coupled with large-scale fiscal stimulus are behind the global economy’s recovery.

Together these factors “are fueling unprecedented bounceback in 2021 than we had projected last year,” the report said.

After 2020’s 3.7% contraction of global gross domestic product (GDP), the sigma forecasts a historically high global real GDP growth of 5.8% in 2021. This comes after robust growth reported in the U.S. (6.5%) and China (8.3%).

“Whether it is private medical insurance or supply chain interruption for businesses, the pandemic experience has made people much more aware of the need for insurance protection.” — Irina Fan, head insurance market analysis, Swiss Re Institute

That does not mean we are completely in the clear, however. The report also noted that COVID-19 variants and vaccine viability against them could be a potential setback for recovery.

Not all countries have had access to the vaccine like the U.S.

The World Bank reported “recovery is expected to be strongest in East Asia and the Pacific, largely due to the strength of China’s recovery. In South Asia, recovery has been hampered by serious renewed outbreaks of the virus in India and Nepal.”

Further, places like the Middle East, North Africa, Latin America and the Caribbean are not expected to see much growth that will offset the contractions they faced in 2020.

“Sub-Saharan Africa’s recovery, while helped by spillovers from the global recovery, is expected to remain fragile given the slow pace of vaccination and delays to major investments in infrastructure and the extractives sector,” World Bank concluded.

All that is to say, overall growth is projected, but it is wise to remain vigilant regionally where the virus is still raging.

A Positive Place for Insurance

Still, despite the uncertainty surrounding regional recovery, the Swiss Re sigma remained positive when looking at the insurance market globally.

The pandemic caused a paradigm shift in terms of insurance and risk awareness. More organizations and their constituents across the globe are reviewing vulnerabilities and working to curb their risk exposures thanks to the unprecedented shutdowns and disruptions we saw last year.

COVID-19 heightened consumer demand for preparedness-related products as well.

“Whether it is private medical insurance or supply chain interruption for businesses, the pandemic experience has made people much more aware of the need for insurance protection,” said Irina Fan, head insurance market analysis, Swiss Re Institute, and an author on the report.

Global life insurance premiums are expected to recover to above-trend growth of 3.8% in 2021 and 4.0% in 2022. Further, the report found that in 2021, key market insurance premium growth is forecast at 6.3% for China, 1.7% for the U.S., 2.8% for Western Europe and 5.6% for emerging markets.

Another key item to note for the insurance industry is the drive for more digitally-based transactions. Online business was the norm in 2020; global broadband traffic rose by 51%. Telework, telemedicine, streaming and e-commerce boomed.

The report has found that consumers and companies are interested in continuing such digital engagement, adding that such habits are only going to change how the economy operates moving forward.

“Quicker than anticipated, new infrastructure investments will require compatibility with advanced broadband cellular networks such as 5G, an industrial use of the Internet of Things and artificial intelligence (AI), large-scale data centers, and … access to renewable energy sources. Building new sustainable infrastructure and upgrading the old can have GDP multipliers of up to 3x, according to estimates from the U.S. Congressional Budget Office and the IMF,” said the report.

Sustainable Growth

To continue down this path of growth, the report noted sustainability must be part of the overall conversation. That includes investing in infrastructure designed for the digital world and prepping financially for future unforeseen crises.

Further, an added focus on climate change can contribute to sustainable growth.

“Climate risk is a global risk, requiring coordinated global policy action,” said the report. “As per our research, if the 2050 net-zero emissions and Paris Agreement targets on climate change are not met, the global economy stands to be 10% smaller. Our estimates show that emerging markets, particularly in southeast Asia, will likely lose the most.”

Ultimately, Swiss Re recommends that in the coming year, the industry should prioritize consumer health awareness and increasingly leverage digital resources as the world emerges from COVID-19. &

Autumn Demberger is a freelance writer and can be reached at [email protected].

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.