Swiss Re predicts impact of urban growth on insurance market

Swiss Re Ltd. released Thursday a report which predicts that as the population of the world’s cities increase, there will also be an increase in demand for various lines of property and casualty insurance, including home, auto and liability.

In its fifth Sigma report of 2013, titled Urbanisation in emerging markets: boon and bane for insurers, Swiss Re noted that the world’s urban population is forecast to grow, by about 1.4 billion, to 5 billion people, between 2011 and 2030.

“Large cities are vulnerable to man-made and natural catastrophe risks due to the high concentration of people and economic assets,” according to the report. “This is especially true for those megacities around coastal areas or near areas prone to high-seismic activity or flooding.”

Swiss Re also predicts that as spending on infrastructure increases, expenditures on premiums for construction insurance coverage will total US$68 billion between 2013 and 2030. That figure is in 2012 constant dollars.

“Homeowner insurance will likely increase in emerging markets, and governments can facilitate this by making homeowner and/or insurance against natural catastrophes mandatory,” Swiss Re stated in the report.

“This would be a positive step, not least because a population is often unaware of the huge personal losses triggered by natural catastrophes until an event actually hits.”

Large cities in emerging markets will also have industrial belts, where disasters can have “devastating” consequences, Swiss Re noted, citing as an example the leak of methyl isocyanate gas from a Union Carbide plant in 1984 in Bhopal, India, which killed thousands.

The total estimated claims from the Bhopal tragedy were about US$70 million, “of which only about half were insured.”

Swiss Re also predicts an increase in demand for both professional and directors’ and officers’ liability coverage.

“A rise in ‘professionalism’ is a common feature of urbanisation. At the same time, disputes and accusations of professional misconduct can increase,” according to the report. “Professional liabilities will increasingly be demanded by practitioners like lawyers and architects and may even be mandated by regulation, as another means of consumer protection.”

As cities grow, the share of auto premiums, out of total P&C premiums, will also grow, Swiss Re added in the report.

“In 1980, motor insurance accounted for 18% of the total non-life premiums written in emerging markets,” according to the report. “By 2012, the share had risen to 45%, boosted in the years following the financial crisis by government efforts to encourage domestic consumption through motor ownership. Last year, motor insurance accounted for 72% and 43% of non-life premiums in China and India, respectively.”