Emerging Markets - Look Before You Leap
June 26, 2014| By Mo Tooker | P/C General Industry | English
From the BRICs (Brazil, Russia, India, China) to the MINTs (Mexico, Indonesia, Nigeria, Turkey), the world’s emerging economies look very attractive to insurers and reinsurers today. Compared to the big mature markets, insurance growth in these dynamic economies shows great potential.
The numbers speak for themselves. Consider this one statistic: India and China are projected to represent 50% of global GDP in 2050. In terms of insurance penetration, emerging markets have incredible potential. For example, in Mexico, only 27% of cars are insured, mostly only for own damage. That insurance picture is repeated around the world as different countries experience fast growth in their middle classes.
But none of these markets is alike and the opportunity they present requires a clear strategy and patience to make it real. Gen Re has been in many of these countries for years; for example, we’ve been in China since 1994 and we’ve been present in Latin America since the early 1980’s.
In recent years, we’ve seen how quickly regulatory requirements can change, with local regulators responding to the Global Financial Crisis and taking closer control of the capital that supports risks in their country.
These regulatory requirements create a dynamic emerging market landscape and one where frictional costs for insurers are increasing. Examples include the increasingly common demand for local risk officers, regardless of the size of the revenue, and IT systems that are ring-fenced in the country.
There are other important considerations, especially on the underwriting side. Local underwriting talent can be in short supply - but in high demand. In terms of risk modelling, data can be inadequate, especially around natural catastrophe perils.
Despite the challenges, insurance capacity frequently far outstrips current demand in many countries, leading to competition for many lines of business.
So, while we believe that emerging markets can represent a real opportunity for growth, expanding into these new and unfamiliar territories needs careful planning and maybe a guiding hand. If you are considering international expansion, talk to your local Gen Re representative first. The chances are we’ve already been there.