Small? According to Swiss Re the global insurance industry generated $4.6Tn in direct insurance premiums, or 6.3% of the global GDP in 2016. Without insurance, flights would not take off, ships would not set sail and you would not be allowed to drive your car. Insurance is a key enabler in the global economy and, without it, the economy would quickly grind to a halt.
How then can the Global Insurance Industry be called Small?
Over the last few decades, the overall size of the insurance industry has not grown at the same rate as the other major financial markets and it has struggled to increase its coverage, especially in new and emerging markets. It is a depressing statistic that ClimateWise (a global network of leading re/insurers, brokers and industry service providers) believes the gap of uninsured or under-insured assets had increased fourfold over the past 30 years.
So why has the growth in the insurance industry been so sluggish and what has constrained it?
Whilst there are differences between insurance and other financial markets, the growth of the Foreign Exchange (FX) market was undoubtedly fuelled by the creation of an electronic marketplace. Up until the 1970s, the FX market was a very traditional, heavily intermediated, paper-based market. The high costs and length of time needed to complete a FX transaction limited the number of parties that were able to participate.
Reuters, acting as an independent third-party provider, laid the groundwork for the first electronic FX marketplace in the 1970s by enabling parties to insert FX rates into their system, making them available on-screen to recipients. The electronic marketplace really took off in 1981 when Reuters enabled dealers to instantly communicate with each other to buy, sell or lend money through the same screen.
The effect this had was that costs were greatly reduced, market liquidity grew, new participants were attracted to the market and it became possible to create a raft of innovative products. The FX market is now the world’s largest financial market, with more than $5Tn changing hands daily.
Although it may seem far-fetched to call the insurance industry Small, it is fair to say that the insurance industry is nowhere near its potential size yet. As so many other industries have done, the creation of an electronic marketplace for the transfer of insurance risks would help drive growth, create efficiencies and stimulate innovation across the insurance market, benefiting the industry as a whole.
AkinovA is building an electronic marketplace for the transfer of re/insurance risks with the support and collaboration of some of the largest market participants. By taking an inclusive approach, AkinovA is bringing together all parts of the insurance value chain to enable the creation of a truly electronic marketplace. We hope everyone at InsureTech Connect in Las Vegas is safe. Our thoughts are with all those affected, whether directly or indirectly.