China, Mexico and Thailand will offer the best opportunities for insurers to expand their businesses between now and 2020, according to research by Ernst & Young.
China, despite a recent modest slowdown, continues to boast extraordinary income growth that spurs auto and home ownership. In addition, an aging population will drive the development of life and health markets. However, while some regulatory restrictions have been relaxed, market entry remains difficult for foreign firms.
Mexico has also undergone a period of extensive liberalisation, opening its market to foreign insurers.
According to
EY, on some measures, Mexico is the most open insurance market in the study. Yet the pace and unpredictability of regulatory change can be risky for investors. Thailand offers near-term growth potential, with modest risk and future growth prospects are also strong.
Incomes in Malaysia and the UAE are rising and a sustained construction boom and the increased adoption of sharia-compliant insurance products are creating new opportunities, but both markets are fairly small and so insurers are going to need to look elsewhere for rapid growth.
Brazil and India remain important opportunities given the size of the markets despite recent slowing growth. India is second only to China in terms of absolute forecast growth in insurance premiums. Yet the regulatory environment has proved extremely challenging for investors. In addition, a large current account deficit and reliance on portfolio-capital inflows elevate liquidity risks.
Brazil is third, behind China and India, in terms of market size. Following a program of liberalization, Brazil is the most accessible of the BRICs for foreign insurance companies.
Indonesia offers an extremely strong economic growth picture – second only to China and Vietnam in EY’s Rapid-growth markets forecast. However, it is challenging to obtain licenses, so acquisition is the main entry route.
Colombia is also a notable market that ranks relatively high in opportunity and only moderately on the risk scale. Despite low interest rates, the insurance market there has expanded at greater than 10% annually over the past four years and offers high growth potential because of relatively low insurance penetration. Significant regulatory liberalization that took effect in 2013 has also created new opportunities for foreign firms.
Shaun Crawford, EY’s Global Insurance Leader said: “While investment in rapid-growth markets will continue to be vital for global insurance firms, outsized returns will not come easily. The wave of regulatory change across the world, consumer buying habits, social media and cultural change, as well as macroeconomics such as the impact of quantitative easing, -these are all things that are easy to overlook but which are absolutely critical when deciding to enter and grow in a market. The companies that use this information to carefully tailor products and develop market entry strategies suited to particular economies and their cultures will see the greatest rewards.”
