DWIC 2023: Time for emerging markets to shine

The retrenchment of capacity from international insurance and reinsurance carriers could be a pivotal move for some emerging markets, helping to drive consolidation and greater risk retention.

This was according to panellists speaking on Day One of the Dubai World Insurance Congress 2023.

Hosted by Trevor Treharne, APAC editor, Global Reinsurance, the panel consisted of Vasilis Katsipis, general manager, Market Development, MENA South and Central Asia at AM Best, Simon Richardson, vice president, EMEA and APAC, Equisoft and Webster Twaambo, managing director, Klapton Re Zambia.

Driving consolidation 

The speakers noted that a combination of factors in recent years had led international carriers to reduce their presence in emerging markets to refocus on ‘core regions’.

The soft re/insurance market of recent years has not helped. “The GCC is one example,” said one of the panellists. “Ten years ago, they were coming in droves. Now international insurers are taking the view that it is too much hassle for too little benefit.”

And while once there were plenty of alternatives waiting in the sidelines, many of these tier two, regional capacity providers have disappeared. 

In the absence of plentiful, cheap reinsurance protection (with the added dynamic of rate hardening in the international markets), this could force a change in local markets which are still characterised by having many smaller insurers that tend to cede on most of the risks they underwrite.

It could help drive M&A activity and a more sophisticated and risk-based approach to the business. The process is likely to be aided by increased regulatory requirements, although there is still some “inertia” in some markets, noted one speaker.

The engine of global growth

Meanwhile, the growth prospects for many emerging markets are bullish in the post-pandemic environment. One speaker said emerging markets would be the engine of global insurance growth moving forward.

Among the key ingredients for insurance growth in emerging markets are strong economic growth trends, demographic trends - with a sizable young working population, and growing middle class - and significant investment in infrastructure and development.

In Africa, around 60% of the population is below the age of 25, said one of the panellists. This is a generation that has a better financial literacy, who are “more receptive to change” and understand the benefits of insurance protection.

And although economic growth has slowed – unlike many Western markets – it has continued despite the challenges posed by the pandemic and financial markets.

Closing the protection gap

Attitudes towards the need for insurance have also evolved since the pandemic, helping to drive demand for cover and improve insurance penetration in underserved markets.

“The pandemic has provided an opportunity for the industry to provide solutions,” said a regional reinsurance executive. “People have come to realise the significance of insurance and we can see the protection gap narrowing.”

The introduction of compulsory covers can help drive a market’s development, but is not a long-term solution, thought one speaker. Otherwise, it can be seen as just another ‘tax’ on individuals to the benefit of insurers.