Executive Summary

The insurance industry got off relatively lightly during the Covid-19 crisis: In 2020, global premium income fell by only -2.1%. Property insurance even recorded a small increase of +1.1%, while the Life business slumped by -4.1%. As a result, total premium income was around EUR80bn lower than before the crisis, adding up to EUR3,730bn (Life: EUR2,267bn, P&C: EUR1,463bn).

The risk landscape post Covid-19 will look different, not because the big trends have changed but because there has been a fundamental change in the awareness and behavior of economic actors. The crisis has massively increased the demands of the industry’s stakeholders, not least with regard to customer engagement. For the industry, this means a profound transformation away from a pure product logic and toward a holistic service approach focusing on the management and prevention of risks.

Mirroring the global economic development, strong growth is expected for the insurance sector in 2021: Total global premiums will rise by +5.1%. Unsurprisingly, the US (+5.3%) and China (+13.4%) are likely to be the two growth engines. However, like the pandemic-related slump, the recovery will be very uneven. While some regions, especially Asia, will almost seamlessly resume their pre-crisis development as early as 2021, the recovery elsewhere will be much more uncertain. Western Europe will be the laggard, with total premium income up by only +1.2%

2021 is the opening shot for a strong decade. Globally, average growth of over +5% over the next 10 years appears possible, driven by higher risk awareness, the pivot to sustainability and the further rise of Emerging Markets. Thus, the premium pool will reach EUR6,500bn in 2031, with Life accounting for EUR4,100bn and Non-Life for EUR2,400bn. Alongside this process, the center of gravity of the global insurance business is set to shift further toward Asia: The region will be setting the pace for the global insurance industry in the 2020s, contributing as much as 50% of global premium growth; China alone will be responsible for 31%. The shares of North America and Western Europe will be significantly lower, amounting to 24% and 15%, respectively.

The political turn towards sustainability gives the industry a new purpose and opportunity to grow. At the same time, however, it raises the bar in terms of disclosing and measuring the impact of insurance products and services in advancing sustainability. The last chapter of this report outlines an approach that further extends the Sustainable Development Goals’ (SDGs’) impact assessment to the sphere of insurance products.

2020 was the year of the virus: Covid-19 destroyed countless lives and economic livelihoods; the global economy plunged into its worst recession since World War II. And the insurance industry was also caught in this downward spiral.
 
In 2020, global gross written premiums in life (excluding health) and p&c declined by -2.1%, or around EUR80bn, to EUR3.730bn. This was almost double the rate of decline seen after the Great Financial Crisis (GFC) in 2009 – but it was also less severe than feared. At this point a year ago, we had expected a decline of just under -4%. The fact that things did not turn out quite so badly in the end was largely due to the p&c business, which even recorded a small increase in premium income of +1.1% last year. In the life business, on the other hand (-4.1%), the decline was more or less in line with expectations (see Figure 1).
 
In retrospect, there is one factor in particular that contributed to the resilience of the non-life business: digitalization. The rapid and smooth transition to digital processes in both sales and operations largely avoided a standstill in new business, which threatened to result from the many contact and mobility restrictions implemented to contain the pandemic. Naturally, this worked less well in the life business, with its more complex and advice-intensive products. Added to this is the (understandable) reluctance of most customers to enter into major or long-term financial commitments during the worst economic crisis of their lives. Therefore, against this backdrop, even the slump in the life business seems almost benign.
 
However, the range of outcomes in this line of business is very wide, which is generally a feature of the past year: The differences in performance between different business lines and markets have rarely been as great as in 2020. Of course, in many cases, this reflects the varying degrees of success in dealing with the pandemic itself, for example between China and the US (+4.2% vs -2.5%) or between Asia (ex Japan) and Western Europe (+2.9% vs -5.1%). But the differences within the regions are also large. While Germany, for example, still grew (slightly) in 2020, France, Spain and Switzerland recorded double-digit declines in premium income. A similar picture can even be observed in Asia, where most markets got to grips with the pandemic relatively quickly. Nevertheless, premiums in Taiwan, for example, fell by almost -10%, while they grew by double digits in neighboring Singapore. In most cases, these discrepancies are due to a catastrophic (or dazzling) performance in life (see Figure 2).

Figure 1: Gross written premium* growth, 2020 by region (in %)
*W/o health; the conversion into EUR is based on 2020 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, Thomson Reuters, Allianz Research.
Figure 2: Gross written premium* growth, 2020 by the 20 biggest markets (in %)
*W/o health; the conversion into EUR is based on 2020 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, Thomson Reuters, Allianz Research.
As extraordinary as 2020 was, in two respects it was a “fitting” conclusion, so to speak, to the 2010s: As in the decade before, premium income in the life segment lagged behind that of the p&c segment, and total premium income, in turn, did not grow faster than nominal economic output.
 
Globally, life premiums grew by only +2.4% in the last decade, half as fast as in the previous decade. The growth gap between life and non-life was thus 2pp, and it can be observed in all regions. There is no need to speculate at length about the cause: The record low interest rates in the aftermath of the GFC were a (too) heavy burden for the life business. Many providers struggled to adapt their traditional product portfolios, geared to interest rate guarantees, to the new reality. This was particularly evident in Western Europe, the largest life market, whose global market share was still over 40% before the GFC, but where premiums grew by a meager +0.6% per year in the 2010s. As a result, its share of global life premiums fell to 30%. But even in the US, the second largest market, the development over the last 10 years has been very disappointing. While low interest rates were the decisive factor in these two markets, in other regions and markets additional obstacles prevailed, namely regulatory and political interventions that slowed growth permanently (Eastern Europe) or temporarily (China). In contrast, the development in the non-life business – +4.4% per year – was rock solid and corresponds exactly to the development in the 2000s (see Figure 3).

Figure 3: Gross written premium* growth, CAGR 2010 -2020 by region (in %)
*W/o health; the conversion into EUR is based on 2020 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, Thomson Reuters, Allianz Research.
The decline of the life business – which still accounted for a good 60% of global premium income (excluding health) in 2020 – is also evident from another perspective, namely penetration (premiums as a percentage of GDP) and density (premiums per capita). While the former has fallen steadily in the life segment over the last 10 years, from 4.1% to 3.4%, the non-life segment has held its own – and even gained 0.1pp in 2020, thanks to its resilience. The picture is similar for density: Whereas in 2010 policyholders on average spent almost twice as much money on life insurance as on property insurance, this lead has now shrunk to just over 50% (see Figure 4).

Figure 4: Global gross written premiums as a % of GDP* and global gross written premiums per capita (in 2020 EUR)*
*W/o health; the conversion into EUR is based on 2020 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, Thomson Reuters, Allianz Research.
The weak performance of the life business has meant that growth in global premium income exceeded nominal growth in global economic activity in only one year (2014) during the decade of the 2010s (see Figure 5). On average, then, households and companies have been spending an increasingly smaller share of their income on risk protection. Given an economic environment aptly described by the acronym "VUCA" (volatile, uncertain, complex, ambiguous) amid increasing natural disasters and health risks – Covid-19 was by no means the first pandemic in this still young millennium – this reluctance is surprising to say the least. It points to growing protection gaps, which became abundantly clear in the pandemic. It may well be that the Covid-19 crisis will be a turning point in this respect and will lead to a new awareness of risks (see section 3.3).

Figure 5: Nominal global gross written premium and GDP growth* (y/y, in %)
*W/o health; the conversion into EUR is based on 2020 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, Thomson Reuters, Allianz Research.
To conclude this review of developments over the past decade, let us take a brief look at the premium world map, i.e. the distribution of premiums by region (see Figure 6). It immediately becomes clear which region is the big loser of the last 10 years: Western Europe. Its share of the global premium pie has fallen by 5pp. The big winners, on the other hand, are Asia and China, whose market share doubled in the 2010s. Nevertheless, the undisputed leader is still the North America region – i.e. the US, which accounts for just under 93% of regional premium income – whose market share fell by only 1pp, mainly due to the strong US property business.

Figure 6: Total gross written premiums, by region in %* (2010 vs 2020)
*W/o health; the conversion into EUR is based on 2020 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, Thomson Reuters, Allianz Research.
Vaccinomics: The economic environment
 
While China was the growth engine of the world economy in 2020 (i.e. the only big economy that grew at all), the US will take over this role in 2021. Global GDP is expected to rebound by +5.1% in 2021, with more than one fourth of the recovery being driven by the US. In 2022, world GDP growth should reach +4%. The over-expansionary stance of the global policy mix explains this rebound in 2021 and 2022, compared with the contraction of -3.6% in 2020. However, execution risks will remain a key differentiator between countries, with the pace of vaccination campaigns driving a multi-speed recovery and keeping divergence at high levels.

Table 1: Real GDP, change y/y in %
Sources: National Statistical Offices, Allianz Research.
In the US, President Biden’s stimulus packages are set to propel domestic demand. Adding the successful vaccination campaign and the healthy progression of housing prices, consumer confidence is set to increase significantly. On the back of this confidence boost, accompanying steady progress on the job front, we expect a big chunk of excess savings to be unleashed, generating a strong impetus for consumption, the main driver of the US economy. All in all, we expect the US economy to grow by +5.3% y/y in 2021 and +3.8% y/y in 2022. Fiscal policy, however, could turbo-charge growth even further. On top of the first USD1.9trn stimulus package, the US government wants to add another round of stimulus with a USD2.3trn infrastructure program to renovate roads and bridges and develop new types of green and digital infrastructure, while continuing to invest in health and education to reduce inequalities. Should the second leg of the plan be implemented in full, it has the potential to boost growth significantly above +6% y/y in 2021 and +4% y/y in 2022.
 
Europe remains the recovery laggard compared to other economic heavyweights. In 2021, we expect the European economy to race at a rapid pace through the entire economic cycle, from a double-dip recession at the start of the year – due to renewed lockdowns – to a consumption-led catch-up growth spurt in the second half of the year when progress on the vaccination front should allow for an economic reopening. Thankfully, strong export demand – driven by the ongoing Chinese recovery and super-charged, stimulus-induced US GDP growth – will extend a helping hand to European economies in 2021, in turn exacerbating the divergence between manufacturing and services. At the same time, policymakers will continue to do “whatever it takes” to safeguard the recovery and shore up public support ahead of key elections in Germany (September 2021) and France (April 2022). All in all, we expect Eurozone GDP to expand by +4.0% in both 2021 and 2022. That means that the Eurozone economy is set to recover to pre-crisis GDP levels only in H1 2022, almost a full year after the US.
 
In China, the post-Covid-19 recovery is well underway, and 2021 will focus on policy normalization. The 2020 rebound was mostly a story of policy-driven areas such as the real estate and infrastructure sectors. In 2021, household consumption and business investment could become the growth drivers. The external environment will continue to be supportive as many of China’s trading partners are still battling the pandemic and their policies are in full easing mode. We expect the Chinese economy to grow by +8.2% in 2021 (after +2.3% in 2020) and +5.4% in 2022. This means that the official target of “above 6%” will be relatively easy to achieve, allowing policymakers to shift their focus away from short-term stimulus to financial vulnerabilities and asset price bubbles (in real estate and capital markets). The normalization, however, will be done in a flexible and gradual manner: fiscal measures, for example, will boost the economy by “only” 4.6% of GDP in 2021, after 7.1% in 2020, but 2.9% on average in 2018-2019.
 
Turning to monetary policies, most central banks will continue with their expansionary measures in 2021, with the notable exception of China, where the policy stance already started to tighten in Q4 2020. In the US and Europe, on the other hand, policy normalization will proceed at a very gradual pace. The US Federal Reserve might kick off with a first tapering step in H2 2022, while the the European Central Bank will clearly lag as growth and inflation trail behind. The first interest rate hikes in the Eurozone may have to wait for late 2023 or 2024.
 
Nonetheless, against the backdrop of stronger confidence in the global recovery and rising inflationary pressure, yields have risen since the beginning of the year. 10y US Treasuries, for example, jumped by a whopping 70bp to 1.6%; at this level, expectations for a strong recovery already seem to be priced in. Accordingly, we expect 10y US Treasuries not to exceed current yield levels at the end of the year, though higher volatility is very likely. A similar development is expected in Europe (but at a lower level): yields of the 10y German Bund will remain broadly unchanged over the year and only rise moderately in 2022.
 
In this context, we expect equity markets to close the year with timid single digit returns but to accelerate in 2022 on the back of a palpable economic recovery and still accommodative monetary policy. European risky assets could even find themselves in a favorable position, offering more upside potential than their US counterparts due to the delayed recovery.
 

All in all, the economic environment should provide the insurance industry with some tailwinds in the next few years. While capital markets remain challenging as the long yield winter is likely to continue and volatility stays elevated, income and investment are growing, building the bedrock for rising demand for insurance.

Insurance and Inflation
 
There is, however, one drag: Inflationary pressures will continue to increase in 2021 for several reasons: first, the recent input cost bonanza, driven above all by strained supply chains and the oil price recovery; second, higher services inflation along with the economic reopening in H2 and third, strong pandemic-related roller coaster base effects. Although the likelihood that inflation embarks on a structural upside trend remains low, even a temporary return of inflation, after years of hibernation, might pose some challenges for the insurance industry.
 
There are basically four channels through which inflation can impact insurance profitability, the claims channel being the most prominent: inflation leads to higher claims costs, eroding profitability. The more sudden the inflation surge, the more severe the impact as premiums cannot be adjusted. The other three channels are expenses, investment income and the balance sheet. Among these three, however, only expenses are a clear negative, in particular if rising wages are not matched by rising productivity. Investment income, on the other hand, could even be positively influenced if inflation leads to higher interest rates. In addition, the impact on the balance sheet hinges on how interest rates and spreads react on inflation, as well as on the maturity (mis)match between assets and liabilities.
 
Given the importance of the claims channel, it is not surprising that the p&c business is first and foremost to suffer from an inflation shock. In particular, casualty and other long-tail businesses are on the hook as they are characterized by long settlement periods: in general liability, for example, after three years of occurrence only half of all claims are settled; as a consequence, loss reserves have to be increased markedly in times of rising inflation.
 
However, note that claims inflation is only partially driven by general inflation. The other drivers are exposure growth (eg. higher economic activity), social inflation (eg. significant increases in jury awards and defense costs), new technologies (particularly in health) and rising natural catastrophes (particularly in property). In Germany, for example, general inflation has historically accounted for only around 40% of claims inflation on average. In certain lines of business, however, it is much less; this applies not only to health, with its huge strides in advancing medical treatments, but also to less obvious candidates such as motor: Over the last seven years, thanks to new materials and technologies (e.g. sensors), prices for car repairs increased by +4.1% p.a. against general inflation of +1.1% p.a.
The impact of inflation may be further diluted if it leads to a recession (stagflation scenario) and thus lower exposure growth.
 
The impact on the balance sheet is rather small in p&c if inflation and interest rates move in sync. On the liability side, nominal reserves are adjusted upwards (for inflation) and discounted downwards (higher interest rate) at the same time; on the asset side, the impact is negative but not big due to a generally shorter duration of assets and liabilities – and will be offset by higher investment income.
 
In general, the life business is a long-tail business as some policies (eg. pensions) can even last for many decades. Nonetheless, the impact of inflation is diluted for a simple reason: most life products come with benefits fixed in nominal terms. But there are some exceptions – eg. business lines like long-term care or disability – in which benefits increase in line with rising costs of living over a long time period.
 
But all in all, the indirect impact of inflation on the life business looms larger: With an inflation surge, lapse rates are likely to increase and demand for policies to decrease as rising inflation and interest rates erode the value proposition of fixed benefits and render guaranteed rates of return inadequate. The demand for savings products in particular might decline if the inflation increase is prolonged and other products (i.e. bank deposits) adjust faster. In the long run, however, higher interest rates are a positive for the life business. The impact on the balance sheet of life insurers is nil – if assets and liabilities are perfectly matched. But if liabilities have a longer maturity, the impact can even be positive because of the higher discount rate for future liabilities.
 
A forward-looking strategy to limit the negative impact of inflation on the liability side includes the indexation of premiums and deductibles, as well as the introduction of fixed payouts, limits and sunset clauses. However, on the asset side, ad-hoc mitigation strategies are possible, such as investing in inflation-linked assets or assets that generally benefit from higher inflation, such as certain equities: The resulting higher investment income would help to attenuate the negative impact of inflation on claims. However, the easiest way to restore profitability would be a quick reversion of inflation rates to the mean. So if the overshoot of inflation rates remains an episode, the impact on the bottom line should also be limited and short-lived.
 
The new risk landscape post Covid-19

Inflation might turn out to be a rather short-term consequence of the Covid-19 crisis. But other consequences will without doubt cause long-term changes. The risk landscape after Covid-19 will look very different.
 
However, this applies less to the major, long-term trends: Digitalization, the pivot to sustainability and the increasing polarization in politics, society and the economy – the most important keywords here are de-globalization and inequality – were already shaping developments before Covid-19. However, the crisis has given them a boost, in some cases a dramatic one. This is true not only for digitalization, where the push is most obvious: working, shopping and entertainment from home are now a matter of course for most people. But the crisis is also acting as an accelerator for the other trends. The shift in emphasis from efficiency to resilience, for example, has been accompanied by a reconfiguration of global supply chains that will lead, if not to de-globalization, then to a significant slowdown in the global division of labor. Covid-19 has also further increased social inequality as job losses have primarily affected the service sector, where young, female and foreign workers are disproportionately represented. On the other hand, the even greater focus on sustainability in the course of Covid-19 can certainly be assessed more positively. This applies in particular to climate protection: The decarbonization of all economic activities is at the heart of the major infrastructure programs aimed at stimulating economies post Covid-19.
 
However, the decisive change brought about by the pandemic took place and continues to take place at another level: There has been a fundamental change in the awareness and self-image and thus behavior of economic actors. This affects the state, companies and households alike.
For a long time – at least in developed countries – an (unspoken) leitmotif of social policy was to shift responsibility for financial risks from illness, job loss or longevity from the state and companies to individuals, at least partially. Covid-19 has led to a paradigm shift here. The state has clearly acknowledged its role as “risk taker of last resort” and has assumed the financial losses of the crisis for households (and companies) without compromise. Looking at the post-Covid-19 measures already taken and planned, not least in the US, it is easy to conclude that these aid measures are not a one-off, exceptional rescue operation; rather they point to a permanently changed self-image. The measures mark the return of the strong state, which uses its resources – (borrowed) money and (legal) interventions – to actively shape the economy and society according to its ideas and concepts. Social and economic outcomes are no longer to be accepted merely as the result of market activities. Of course, other developments, such as the increasing systemic competition with China and the rise of populism, have also contributed to the resurgence of the strong state but Covid-19 was the decisive impetus to make this policy mainstream. And once in the mainstream, it is not expected to disappear quickly.
 
What does this mean for insurers? For one, quite mundanely, more intrusive regulation is to be expected. The new regulatory approach is no longer "just" about transparency, information and risk management, but about conduct and "value for money": Do the products and services meet customers' expectations and needs? However, the industry should see these new requirements not as a chore, but an opportunity for real cultural change, which will pay off in the medium term: better products, stronger reputation, higher customer loyalty, thanks to true customer centricity, which runs through the entire company, from bottom to top.
On a fundamental level, however, the return of the strong state could become a threat to the insurance industry. The pandemic in particular has drastically demonstrated the limits of (private) insurability. How the industry deals with this will be crucial to its future significance. This is not just about insuring pandemics; risks from natural catastrophes and cybercrime can also quickly reach systemic dimensions. The industry must resist the temptation to shirk its responsibility by restricting cover and tightening wording. Instead, it should actively work on viable solutions which, in the case of risks of this magnitude, will result in private-public partnerships. It is essential for its role in society that the insurance industry actively contributes to the efficiency and effectiveness of such insurance regimes for systemic risks. Otherwise, its "license to operate" could increasingly be called into question.
 
Corporate thinking has also changed in the pandemic. The keywords here are “purpose-driven” or “stakeholder capitalism”. Today's companies serve a broader range of interests beyond maximizing shareholder returns; ideally, they are guided by a purpose, contributing to societal well-being by providing solutions to the societal problems facing their customers. This automatically leads to a stronger politicization of companies, as can be seen, for example, in their involvement in the "Black Lives Matter" movement.
 
This shift in emphasis in the self-image of companies also has an impact on their demand for risk protection. Questions of reputation and brand are gaining great importance and new explosiveness, requiring not only new insurance solutions, but also joint strategies for managing and preventing risks. What is required is a holistic approach consisting of consulting and financial protection. In the context of accelerated digitization, data integrity issues naturally also play a major role, from the handling and use of private data to protection against cyber-attacks. New solutions are needed here, particularly with regard to working from home, not least in the area of worker compensation.
 
From the insurance industry's point of view, however, the greatest changes are to be observed among households, i.e. retail clients. The often traumatic experiences during the pandemic have led to an appreciation of central insurance concepts such as protection and safety, resilience and wellness. This has been accompanied by increased demand for risk solutions, not least in the area of health.
However, this is by no means synonymous with a run on traditional insurance policies by customers. Rather, the opposite is likely to be the case. Because in the pandemic, even the last analog customers have had a crash course in digitization and have learned to appreciate and love the innovative, fast, and personalized offerings of digital providers – standards that they now also apply to their insurance. This means that insurers face no less a task than redefining customer engagement and experience, areas in which they have traditionally not exactly shone. One way to do this is to build ecosystems that offer not only insurance products but also related services, such as data-based services in mobility or consultations, prescriptions and self-management tools related to health. For this, cross-industry cooperation might become necessary. In this way, the value proposition of insurers would be enhanced, from pure financial compensation to risk management and holistic service offerings to prevent and mitigate risks. This would enable them to catch up with the established digital providers, which have been achieving a high level of customer engagement for years and are thus also in a position to create new products and services with customer-centric data ("value co-creation").
Covid-19 was a hard blow for insurers. The post-Covid-19 risk landscape, on the other hand, offers great opportunities – but not for free. The demands on the industry have increased dramatically. This affects both the government that regulates the industry and the clients who buy its products and services. In both cases, it is about building and expanding partnership-oriented relational business models; this would need to be accompanied by a shift from a pure product logic to a more service-oriented business model. The next few years will show whether the insurance industry as a whole is up to this challenge. However, it does not have much time for transformation. It may not necessarily lose its role as a risk carrier but it will lose the competition for customers to big tech companies or new competitors.
2021, the opening shot for the golden 2020s
 
Strong growth is expected for the insurance industry in 2021, mirroring the expected global economic development. Overall, global premiums are expected to rise by +5.1%. Unsurprisingly, the US (+5.3%) and China (+13.4%) are likely to be the two growth engines. After the sharp decline in the previous year, the recovery in the life segment (+5.7%) will be somewhat stronger than in the property segment (+4.2%) (see Figure 8).
However, like the pandemic-related slump, the recovery will be very uneven. While some regions, especially Asia, will almost seamlessly resume their pre-crisis development as early as 2021, the recovery elsewhere will be much more uncertain. In addition to Japan, this applies above all to Western Europe. This is partly due to the handling of the Covid-19 crisis itself – continued lockdowns due to high case numbers, delayed vaccination campaigns due to supply bottlenecks – but it also partly reflects late effects of the pandemic. Low claims expenses in the previous year, especially in motor insurance, are leading to lower premium momentum this year; the practice of retrospective pricing based on turnovers is having a similar effect in some industrial insurance lines. In life insurance, the conditions are much more favorable – many households have high additional savings – but here, too, it remains questionable whether a dramatic turnaround can be expected as early as this year following the deep slump in 2020 and the continuing uncertainty about the progress of the pandemic. Against this backdrop, growth of only +1.2% is expected in Western Europe in 2021 (life: +1.3%, p&c: +1.1%). As a consequence, while global premium levels are likely to return to pre-crisis levels as early as the end of 2021, this figure will probably not be reached in Europe until 2023.

Figure 8: Gross written premium* growth, 2021 by region (in %)
*W/o health; the conversion into EUR is based on 2020 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, Thomson Reuters, Allianz Research
Globally, the strong growth should continue in subsequent years. There are several reasons for this: better growth prospects, thanks to the pandemic-related innovation boost and more (public) investment as a result of the pivot to sustainability; heightened risk awareness after the pandemic; accelerated demographic change and the further rise of Emerging Markets. Globally, average growth of more than +5% seems possible over the next 10 years, with life insurance (+5.6%) growing slightly faster than property insurance (4.6%). Overall, premium volume should increase to EUR6,500bn in 2031, with life accounting for EUR4,100bn and non-life for EUR2,400bn (see Figure 9).
 
The pace of growth in the next decade is thus likely to be significantly higher than in the 2010s (+3.1%). This applies in particular to life insurance, where the growth rate should more than double (from +2.4% to +5.6%). This development will be driven by the developed markets, where the life business should return to normal after the “leaden 2010s” with their permanent low interest rates. This is because, on the one hand, providers have now fully adapted their products to the changed environment and, on the other, life risk protection and provision for old age has lost none of its urgency. In fact, the aging of societies will accelerate in the coming years and the exploding national debt argues for more rather than less individual provision. In combination with higher growth, it should therefore once again be possible to achieve growth figures in Western Europe (+3.1%) and North America (+4.8%) that are more reminiscent of the beginning of the millennium. After the lost decade, these are almost golden prospects for the beleaguered sector.
 
But the prospects for Emerging Markets – where, with the exception of Eastern Europe, there has been no slump in the life business in recent years – are not bad either: here, the strong development of recent years is simply likely to continue. In view of the still rudimentary nature of some social security systems and progressive social and demographic change, individual retirement provision is becoming increasingly important in these markets as well.

Figure 9: Gross written premium* growth, CAGR 2021 -2031 by region in %
*W/o health; the conversion into EUR is based on 2020 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, Thomson Reuters, Allianz Research
In the non-life business, the increase in growth compared with the previous period will be significantly lower: +0.2pp. In other words, the property insurance markets will largely continue their growth of recent years, and this applies to all regions. Nevertheless, the 2020s promise to be far from boring; beneath the surface of relatively stable growth figures, far-reaching changes are taking place.
On the one hand, covering risks in a VUCA (volatile, uncertain, complex, ambiguous) world will become increasingly important. Covid-19 has once again brought this brutally to mind. In addition, there are relatively new and fast-growing business areas such as cyber risks and transition risks of the green transformation. So there will be little shortage of demand for insurance. On the other hand, supply will change radically. The industry is on the verge of a major productivity boost, thanks to extensive digitalization and automation. At the same time, new technologies are revolutionizing not only the operations and sales processes of insurance companies, but also the assessment and prediction of risks. Prevention and loss mitigation will play an increasingly important role. All these developments will have an impact on the pricing of risks – and thus on the development of premium income. There is also another factor: More and more risks have a systemic character, and this applies not just to pandemics; “thanks” to increasing connectivity and intensified climate change, it also applies to cyber risks and natural catastrophe risks. In the future, this is increasingly likely to lead to the formation of public-private partnerships, i.e. insurance schemes in which a (large) portion of the risks is assumed by the state. This, too, will not be without consequences for the revenues (and profitability) of insurance companies. So the bottom line is that the prospects are more golden for policyholders – simpler and more comprehensive products, additional services, transparent and fair prices – than for the insurance industry itself, which faces the task of profound change in the coming years.
 
Alongside these transformative changes, however, there are also quite mundane ones, including the further shift of the global center of gravity in the insurance business toward Asia. The region will be setting the pace for the global insurance industry in the 2020s. The numbers are simply breathtaking: Over the next decade, the region will contribute 50% of global premium growth; China alone will be responsible for 31%. The shares of North America and Western Europe will be significantly lower, amounting to 24% and 15%, respectively (see Figure 13).

Figure 13: Gross written premium* growth, by region in EUR
*W/o health; the conversion into EUR is based on 2020 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, Thomson Reuters, Allianz Research
As a consequence of Asia's rapid growth, its world market share is set to reach 35% at the end of the 2020's (from 25% today); in life, it will be even higher at around 40%. In a mirror image, the market share of the established markets will decline. The loss of importance of Western Europe in particular is striking. By the end of the decade, less than a quarter of global premium income is likely to be written here. At the beginning of the millennium, Europe was still the world's largest insurance market, with a share of 38% (see Figure 14).

Figure 14: Total gross written premium*, by region in % (2020 vs 2031)
*W/o health; the conversion into EUR is based on 2020 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, Thomson Reuters, Allianz Research

The sustainability impact of insurance

The pivot to sustainability has been accelerated by Covid-19 and is a strong tailwind for the insurance industry, creating new opportunities. On the one hand, the green transformation increases demand for protection and mitigation; on the other hand, it offers new investment opportunities with more stable returns. The political turn towards sustainability gives the industry a new purpose and opportunity to grow. At the same time, however, it raises the bar in terms of disclosing and measuring the impact of products and services in strengthening sustainability. How can this be done?
The United Nations Sustainable Development Goals (SDGs) provide a foundation and orientation for achieving sustainability in a broad global context. They demand and end to poverty, protection of the planet and improving global political and economic stability through 169 targets grouped in 17 topics or goals that drive global action across social, environmental and economic development issues. The SDGs enjoy a wide popularity for assessing environment, social and governance (ESG) related topics as they are based on a long-term political and societal consensus process and provide a continuously improving science-based methodological framework and accompanying data.
This report outlines an approach that further extends the SDG impact assessment to the sphere of insurance products. As a top-down approach, it is particularly useful to form expectations on the average potential positive impact that specific ESG-oriented insurance product groups will have in different countries. In many instances, a bottom-up approach that evaluates the impact of every single product in every market separately would be overly time-consuming or require unavailable data. Even for a top-down evaluation, the existing data can hardly be called satisfactory but they at least allow us to generate valuable insights beyond a proof of concept. Even if a bottom-up approach is feasible, it is not generally preferable but complementary and the concrete best choice for one or the other will depend on the specific use case.   

Figure 16: Insurance product SDG impact assessment approach

*W/o health; the conversion into EUR is based on 2020 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, Thomson Reuters, Allianz Research
The basic structure for determining the SDG impact is laid out in Figure 16. For a concrete insurance product portfolio, it consists of three steps. First, the relative importance of each product in each market has to be determined. This can for instance be approximated by the share of the revenue stream that a product generates in a country relative to the total revenue of all products in all countries. Second, the products need to be evaluated according to their “SDG positive alignment”, which specifies the positive impact that a product has on each SDG. This is typically approached through heat maps that indicate the product’s relative contributions to different SDGs. While this specifies the potential impact a product could have, the actual impact also depends on the necessity or urgent need for such a product in a country, which is indicated by, third, the “SDG additionality”. The SDG additionality approximates the state of progress for each SDG, for instance through a country-specific index value. Low progress in a SDG would be interpreted as a high necessity for products that have a positive impact on the respective SDG.  That way, the typical impact that an ESG-related insurance product generates can be indicated. As we do not evaluate a concrete product portfolio, we only employ the second and third step in Figure 13 for approximating the representative impacts by country.  

Table 2: Insurance product positive SDG impact alignment heat map
– simple approach with equally weighted top-4 SDG impacts per product category
*W/o health; the conversion into EUR is based on 2020 exchange rates.
Sources: National financial supervisory authorities, insurance associations and statistical offices, Thomson Reuters, Allianz Research