• From Brazil, MAPFRE Economics explains how Life insurance contributes to the generation of savings and economic growth.
• It uses 43 markets as a reference, with the main products marketed, as well as the different regulatory models.
Life insurance, in addition to the compensation and personal protection that it provides to the insured parties and policyholders against death and retirement-related risks, plays a central role in the economy’s savings-investment process. According to the report Elements for the development of Life insurance, drawn up by MAPFRE Economics and edited by Fundación MAPFRE, Life insurance premiums reached 2.82 trillion dollars worldwide in 2018. And 93.5 percent of this volume was concentrated in three regions: Asia (37.7 percent), Western Europe (32.8 percent) and North America (23 percent). Penetration (the weight that insurance premiums—in this case, in the Life insurance segment—have on a country’s GDP) represented 3.2 percent of global GDP.
The behavior of the economic cycle is a key factor in the development of Life insurance, whereby GDP growth promotes the growth of Life insurance premiums and vice versa. It is particularly relevant to Life protection products and also has an influence on Life savings and investment insurance. However, these last lines of business are also influenced by other factors, such as the behavior of interest rates, the risk spreads of fixed income bonds (sovereign and corporate) and, in some markets, the behavior of equity securities markets. “The size of the Life insurance market is different in each country and regulatory, demographic, economic and social factors have influenced its development with varying degrees. In developed countries, the coverage of this insurance is more widespread across society than in emerging countries, where only a portion of the population is protected by life insurance,” says Manuel Aguilera Verduzco, General Director of MAPFRE Economics.
In the study, presented online from Sao Paulo (Brazil), a selection of Life insurance markets is analyzed in detail, which is considered representative owing to its regional importance, the degree of development of the products they market and its dynamism. This selection of 43 countries aims to cover a wide range of Life insurance products offered by insurance companies worldwide, as well as different regulatory models, in order to identify those practices that can be considered as a benchmark when designing public policies aimed at protecting policyholders, stimulating savings through this type of product and the stability of the global financial system.
For example, in the case of the Spanish insurance market, Life insurance premiums amounted to 29 billion euros, representing 2.4 percent of GDP compared to an average of 4.3 percent in developed insurance markets. As indicated in the report, the Spanish market has a significantly lower degree of development than the developed average and, therefore, the type of products being marketed is less sophisticated. In this sense, temporary annuity and whole life annuity products predominate, although the weight of deferred capital products is also significant. At the same time, as regards product distribution, it should be noted that the Spanish Life insurance market is clearly characterized by the predominance, first of all, of the bancassurance channel, followed by that of agents tied to companies. The Internet channel still has very little weight when it comes to the brokering segment.
The importance of regulation
Public policy is an essential element in boosting savings growth in an economy and can drive the use of life insurance products in achieving that. In this respect, such public policy can be structured in three groups: regulatory aspects (involving market access, long-term regulatory stability for insurance companies, incentives for innovation, and elements of market behavior); participation in pension systems (including compulsory employment pension systems and voluntary pension schemes); and tax incentives (for savings and investment products, life insurance risk and the avoidance of disincentives related to indirect taxation). “The development of the life insurance segment can be a key element in the design and implementation of public policy aimed at increasing both the savings rate and investment in an economy, with the positive effects that these phenomena bring in terms of growth of material wealth and levels of well-being in society,” concludes Aguilera.
- The full report can be found here