• According to the Global Insurance Potential Index, China, the USA, and India are the countries with the highest insurance potential.

• The worldwide Insurance Protection Gap is in the amount of USD 5.675 trillion, a figure lower than the one from the previous year.

MAPFRE Economics, which is the MAPFRE Group’s economic research service, has updated its Global Insurance Potential Index (MAPFRE GIP) using the latest available data for the year 2020. The purpose of this indicator, which is calculated for 96 developed and emerging insurance markets, is to measure the worldwide insurance protection gap, by creating a metric that can rank those markets in terms of their medium-term and long-term insurance potential. In this most recent ranking, Mexico has risen from the 10th position to the 9th position in the Life segment, and it is now in the 11th position in the Non-Life segment.

Calculation of the MAPFRE GIP is based on estimates of the size of the Insurance Protection Gap (IPG) in the markets studied, along with the capacity of the corresponding countries to close that gap. The IPG represents the difference between the insurance coverage that is economically necessary and beneficial to society, and the amount of coverage actually acquired. It is not a static concept, but instead one that evolves in tandem with growth of a country’s economy and population, while also being influenced by emergence of new risks inherent to economic and social development.

The insurance gap reached a level of USD 5.675 trillion, equivalent to 6.75% of the global GDP. This IPG is distributed as 68.1% in the Life segment and the remaining 31.9% in the Non-Life segment (USD 3.865 trillion and USD 1.810 trillion, or 4.56% and 2.13% of global GDP, respectively).

“In general terms, the crisis generated by the pandemic has had less of a negative impact on the Non-Life segment than on the Life segment, and therefore, the penetration index was higher, and narrowing of the IPG was greater, in the Non-Life segment than in the Life segment. Along with the effect on premiums mentioned above, it must be added that the COVID-19 situation had a major negative impact on global GDP, which has shown a more immediate decrease in response to the crisis, translating indirectly into a higher penetration index,” explains Manuel Aguilera, the general manager at MAPFRE Economics.

Mexico as a Case Study

In the case of Mexico, the country’s insurance market rose one position compared to last year in the GIP ranking for the Life segment, and it is now in 11th position in the Non-Life segment. The country also shows a Gap Absorption Index (GAI) of 36.67 and 31.86 in those two segments, and a time period of 23 and 13 years needed to close the IPG, respectively.

The explanation for this is that despite a decrease in the Non-Life premium volume, the size of Mexico’s domestic gap has decreased (as a result of a higher penetration index caused by a decrease in nominal GDP). Because of this, fewer years would be needed to close the insurance gap and converge upon the benchmark value.

For calculating the MAPFRE GIP, other factors in addition to the IGP are taken into account, such as penetration (premiums/GDP), size of the economy, and population size, among others. The result produced by this approach is an indicator that allows each market to be ranked on the basis of its potential contribution to closing of the global insurance gap.

In order achieve a high ranking, a market needs to be large in size (measured in terms of GDP), and the country must have a significant capacity to close its own insurance gap.

The report also stresses that there are some countries that have ample capacity to close their own gap, but because they have relatively little economic weight in global terms, they will end up relatively low in the ranking. The report places great emphasis on this group of markets, because given their level of convergence towards the established benchmark values, they represent a future source of insurance potential. For example, Pakistan, Egypt and Bangladesh are three countries that, in the next few years, could be contenders for taking over Top 10 positions in the Life segment currently occupied by other emerging markets. In the Non-Life segment, Bangladesh, Pakistan, Iran, Egypt and Nigeria (in that order) have been identified as countries with enormous capacity to reduce their domestic insurance gaps, and if they continue to show growth, they will have long-term possibilities for overtaking other emerging markets in terms of the insurance potential index.

The full version of the report (in Spanish) can be found here