Insurers are aware of the strong potential of emerging countries

In 2016, the emerging markets accounted for 20% of global premiums (life and non-life), compared to barely 5% in 2000 (according to Swiss Re figures).  However, this rapid growth should be set against their share of the world’s population (86%) and global GDP (40%).

In detail:

• The average spending on insurance per inhabitant amounted to $149 in developing countries in 2016, against $3,505 in developed countries.
• The average penetration rate, calculated in relation to GDP, reached 3.2% in the emerging economies, against 8.8% for the most advanced.

These results are explained by the insufficient insurance coverage of populations on the lowest incomes. This can be attributed to the shortage of affordable and available insurance solutions, the lack of a risk culture and the fragmented nature of the regulations.

Despite their disparities, the emerging countries share certain common characteristics:

• Economic vigour, expanding domestic markets and the rapid emergence of a middle class with aspirations similar to those found in developed countries, including with regard to spending on health and personal risk insurance.
• Large differences in income between populations. Inequalities between the richest and poorest households are greater than the average figures for OECD countries.

The number of people on very low incomes (and especially those working in the informal sector) and who are in need of insurance, is estimated at 3 and 4 billion (according to a study by Accenture), which amounts to a potential market of $30 to $50 billion in insurance premiums. These individuals have no protection against negative external events such as illnesses, natural disasters and accidents.

The most appropriate response to this situation is micro-insurance. The long-term challenge for insurers will be to encourage the millions of policyholders who have opted for this product to subscribe to traditional insurance services. 

Two factors are supporting this tendency:

• There are immense needs in the agricultural sector, despite the rapid rate of urbanisation. Agriculture remains a key driver for the economic development of emerging countries. According to Swiss Re, agricultural insurance could actually triple between now and 2025, rising to around $15 billion. It guarantees stable resources for farmers and, as a consequence, gives them access to credit for investment in their farms, in a context of climate change and volatile agricultural commodity prices.
• Reduction of mobile phone blank signal reception spots: rural areas are increasingly covered by 3G/4G services, narrowing the gap between rural and urban populations. According to the international association of mobile telephony operators (GSMA), 80% of micro-insurance customers have subscribed to their products directly on their mobile phones.

To conquer these emerging markets, insurers must adopt innovative approaches incorporating solutions and distribution channels that are adapted to the local populations. In certain cases, it is sometimes better to establish partnerships with local operators as part of a long-term investment strategy. It should also be noted that many emerging countries, with China leading the way, are adopting protectionist approaches to promote the development of their national financial stakeholders.

* countries which differ from the others in their category (developing countries) by posting better macroeconomic performance (industrial production and employment) and high growth rates. China, India and Indonesia, in addition to Latin American countries such as Brazil and Argentina, are regularly included in this category (source: Larousse).