Urbanisation is expected to be a key driver of property premium growth according to the latest Sigma report from Swiss Re.
According to the carrier, urbanisation will increase global property premiums, most notably in emerging markets. There, it suggested, urbanisation will contribute $24 billion, or around 10% of additional property premiums by 2040, and 3% of global premium.
The share of the urban population in emerging markets is forecast to increase from 54% in 2020 to 63% in 2O40, translating into an additional 1.5 billion urbanites. The urban populations of India and China are forecast to rise to 261 million and 208 million, respectively.
Swiss Re expects the property risk pool generally to increase in size by 30% to 40% on the back of rising climate-related exposures.
Indeed, climate change and climate risk is expected to add $183 billion of new P&C premiums globally by 2040, according to Dr Jérôme Haegeli, group chief economist of Swiss Re, who was speaking at the launch of the latest Sigma report.
Over time, if climate risks continue to escalate, property could become the biggest component of the P&C insurance and reinsurance risk pool.
Today, some roughly 25% of P&C insurance premiums are related to property lines of business, but by 2040 this is expected to rise to 29% of the overall P&C risk pool premium.
The result of this is an expectation that insured catastrophe losses will rise significantly, with Swiss Re estimating that weather related insured catastrophe losses will increase by between 30% to 63% in key advanced markets by 2040.
The main drivers are expected to be floods, tropical cyclones and perils like wildfires.
While the increase of up 63% is significant, it is expected to be even bigger for some key insurance and reinsurance markets, with locations like Germany, China, France and UK expected to see a 90% to 120% increase in insured catastrophe losses by 2040.
According to Swiss Re, this will translate into significant opportunity for those able to create and structure relevant insurance and reinsurance products to provide cover to property as climate risks increase, with a corresponding “increasing need for reinsurance due to more severe catastrophe losses”.
The reinsurer also suggested that the P&C market will see its premium base increasingly driven towards more complex risks, in the property and liability space, while lower volatility drivers of the past, such as motor, will be less of a contributor.
“Promoting the conditions for long-term sustainable growth is particularly important in the face of climate change, which poses the biggest long-term threat to the global economy,” said Haegeli.
“If we are to build a sustainable insurance system that allows society to manage and absorb future risks, we need to make risks and opportunities quantifiable. Our work is also vital for policy makers with whom we share the aim of making economic growth insurable.”