Foreign insurers in emerging markets – a win win situation for both

Foreign Insurers in Emerging Markets – A Win-Win situation for both January, 2013 BLOG POST

Globalization and Growth in Emerging Markets Globalization along with liberalization and deregulation has been one of the most talked about words in the recent past. Over the last two decades globalization has been an enticing force which no economy, be it developed or emerging can avoid embracing unless it is determined to isolate itself from the mainstream of internationalization and development.

Financial services as a whole and insurance in particular have not been exceptions and keeping this change in mind, lot of institutional and policy reforms were implemented in order to develop the financial system and liberalize trade in financial services.

On the wake of global economic recession all developed countries like US and Western Europe failed to deliver consistent, large-scale growth. There has been a natural shift in terms of strategic focus to emerging giants like Brazil, India and China as well as smaller but faster growing economies like Indonesia, Vietnam and Turkey.

As per the latest reports by Swiss Re and Munich Re, global premium growth for the primary insurance market was just under 2.5% in 2012. However this growth is still behind the average pre-crisis growth rate. All key emerging markets have witnessed robust growth in the range of 6.5-7% and have outpaced advanced markets in 2012.

The high growth potential in the emerging markets is one of the major factors attracting foreign insurers. In 2012, the growth rate in these countries was twice that of their developed counterparts.

Additionally, Insurers across the globe see bright, long-term future in Latin America, Asia and Africa as the middle class income group is rapidly expanding.

However, there are often challenges to overcome in foreign markets like domestic regulatory hurdles, poor infrastructure and distribution ecosystem, often common non-friendly tax structure and cultural differences. These short term obstacles can easily be overcome, on the backdrop of expanding middle class and private-sector business community, which undoubtedly provide significant growth opportunities to new insurers eyeing the market.

In addition, as some countries reduce regulation and encourage foreign insurers, consolidation and M&A opportunities become apparent, attracting the foreign insurers all over again.

Foreign Insurers in Emerging Markets – A Win-Win situation for both

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What Foreign Insurers can bring to boost economic development Insurance sector is one of the key pillars of the financial services sector as a central element of the trade and development matrix. There have been a lot of discussions regarding the importance of a sound domestic insurance market in overall economic development. A well-functioning insurance sector plays a crucial role both as an infrastructural and commercial service, in economic development not just at a macroeconomic level but also in terms of the activities of individuals and businesses.

Today lot of trade and finance take place across the borders and since it is imperative for all kind of businesses to operate with less volatility and risk of failure, insurance provides that promise, hedging of risk and volatility have become highly important.

Let’s try and understand what foreign insurers bring to the ecosystem of any emerging nations’ insurance market.

Foreign insurers can thus help upgrade product quality and flexibility, quality of customer service and the overall working of the insurance markets in the emerging nations.

Needless to say that the positive impact on insurance will have a positive spill-over on the overall economy of the emerging market too in the form of higher jobs, higher savings and improved financial outlook.

Source: Center for Risk Management and Insurance, UNCTAD, Swiss RE, Property Casualty 360

Foreign Insurers in Emerging Markets – A Win-Win situation for both

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