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INSURANCE| 23.09.2022

Insurance accounts for more than 7% of the global economy

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The volume of insurance premiums worldwide is greater than the GDP of Spain, Italy, and France combined. It’s impossible to contemplate social and economic development without insurance.

Insurance dates back many centuries and has shown itself capable of evolving to continuously meet society’s changing needs.

A few key figures can help to illustrate the importance of insurance… Today, global insurance premiums represent 7.1% of the world’s economic activity, and the weight of the industry has increased by one percentage point in the last ten years. This percentage is even better understood when translated into absolute figures: in 2021, premiums rose above USD 6.8 trillion. This is more than the gross domestic product (GDP) of Spain, Italy, and France combined.   

Without the certainty that only insurance brings, what company or individual would launch any initiative at the risk of losing everything? The general economic advancement and social progress we all take for granted is simply unthinkable without insurance. This has been the case throughout history, where the insurance industry has proven to be a lever for both economic and social prosperity.

Naturally, the weight of insurance in each country’s economy is different, and there are many factors that explain this. In addition to the economic environment in each country, as well as people’s ability to purchase insurance products, other factors come into play, such as the historical roots of the industry in certain countries. Britain, often considered the home of modern insurance, would be a case in point here.

In absolute figures, the United States leads the ranking in terms of premium volume, with a total of USD 2.7 trillion — higher than the sum of the total insurance business in China, Japan, Great Britain, France, Germany, South Korea, Italy, and Canada. However, although absolute figures are enlightening, it’s also important to look at how much this industry represents in relation to a country’s GDP in order to truly assess the influence and importance of insurance in each country’s economy.

For example, although the percentage of insurance in relation to the country’s GDP is 11.8% in the United States, in some markets with considerably lower premium volume, such as Great Britain (USD 399 billion), the weight of the industry in its economy is higher, reaching 12.5%. A closer look at the data shows the opposite can also be true: in China, with premium volume of USD 696 billion — the second highest in absolute terms — insurance accounts for only 4% of its national activity.

There are also differences among European countries, although not as pronounced. In France, insurance accounts for more than 10% of GDP, while in Italy and the Netherlands, the percentage is similar at around 9%. Elsewhere, it sits at 6.5% in Germany, and in Spain, with a volume of USD 74 billion, it represents 5.1% of the economy, although this percentage has fallen slightly over the last decade (four tenths of a percentage point).

The world’s top 15 insurance markets include six where insurance penetration in relation to GDP is in double digits, highlighting the importance of the industry to their economies. Hong Kong leads the ranking with a penetration rate of close to 20%; in Taiwan and South Korea, the percentage drops to 14.5% and 10.7%, respectively. The remaining three countries are the United States, Great Britain, and France, as reported in The Spanish Insurance Market in 2021, edited by MAPFRE Economics. 

No Latin American country appears among the top 15 global insurance markets, evidence that the insurance gap (defined as the difference between the amount of insurance that is economically beneficial and the amount of coverage actually purchased) is still very large in the region, despite the development of microinsurance in several countries. Nevertheless, this gap also presents a growth opportunity for the industry throughout the region. 

In fact, MAPFRE Economics has developed the Global Insurance Potential (GIP) index to measure the gap between the optimal level of insurance that a country should have and what it actually has in place, as well as the estimated time needed for that gap to close, in the best-case scenario, or at least narrow. This index changes in line with different variables, such as the country’s economic growth, population, and new emerging risks. According to the latest update of this index, the possibility of reducing this gap is greatest in Mexico and Brazil, the largest countries in Latin America. This is due, among other reasons, to the starting point of both economies, where insurance already has some weight.

What would a world without insurance be like? Simply put, it wouldn’t be.