Insurance, Risk Management & Reinsurance Market Research

Insurance and risk management make up an immense global industry.  According to a survey conducted by a leading global insurance firm, Swiss Re, worldwide insurance premiums totaled $4.89 trillion in 2017 (the latest data available), up from $4.73 trillion in 2016.  This was equal to about 6.1% of global GDP.  Global life insurance premiums were $2.66 trillion during 2017, while all other types of insurance totaled $2.23 trillion.

In America alone, the insurance business employed about 2.7 million people in 2018.  Gross life and accident & health insurance premiums in the U.S. totaled $848.1 billion during 2017 (a small increase), per the National Association of Insurance Commissioners (NAIC), while property and casualty premiums totaled $641.1 billion (up substantially from $612.1 billion the previous year.)  A large number of companies underwrite insurance in America, but the industry is dominated by a handful of major players.  Health insurance premiums paid in the U.S. during 2017 totaled $667.5 billion (up from $637.1 billion the previous year, and much higher than the $411.1 billion posted in 2007), according to the NAIC.

Premiums on a per capita basis remain very low in much of the world, pointing to excellent long-term opportunity for expansion of sales of insurance products of all types, including annuities.  It would be hard to overstate the importance of developing nations, such as China, India, Brazil and Indonesia, to the future growth of the insurance industry.  Much of the world is still clearly a fertile field for expansion of insurance companies that are willing and able to invest time and money in emerging markets.  The insurance markets in these areas will be boosted by a combination of rising household incomes; increasing education and financial sophistication among consumers; extending life spans; and a tradition of families relying on personal savings and initiative rather than government social programs to provide for retirement funds and health care.

Massive amounts of insurance company earnings come from the sale of annuities and other retirement and investment products, along with profits (or losses) that insurance underwriters earn on the investment of their own assets and reserves. 

In America, insurance is unique in the financial services field because, unlike banking and investments which are regulated largely (although not entirely) by federal agencies, insurance is regulated primarily at the state level.  This means that insurance firms must deal with up to 50 different sets of state regulations and 50 different state regulatory agencies.  At the same time, they must develop dozens of different premium rate structures that appropriately reflect the costs of meeting local risks and fulfilling state requirements.  As a result, few insurance underwriters offer all of their insurance products in all 50 states; many do business only in a limited number of states.  It is a regulatory and administrative nightmare that limits consumer choices and drives up overall insurance costs.

Insurance underwriting does not earn consistent levels of profits.  Property and casualty insurance companies sometimes face a year of losses, rather than profits, due to natural disasters such as hurricanes, earthquakes or floods.  Occasionally, insurance underwriters go broke, and firms that rate the financial stability of insurance underwriters always list more than a few that are not financially sound.  While the unusually high number of disasters in The U.S., Mexico and Caribbean during 2017 resulted in massive payouts by insurers, including those for losses from hurricanes, earthquakes and the California wine region fires, nearly all underwriters were in excellent financial condition and had very substantial reserves on hand to cover losses.  In addition, most insurance firms laid off a substantial portion of potential losses to third-party reinsurance companies.  These events did not put the insurance industry in jeopardy.

The insurance industry includes a wide variety of sectors and services.  The most obvious are insurance underwriters that cover the risks and issue the policies, along with the agencies that sell insurance.  However, there are also large numbers of consulting firms, claims processing firms, data collection firms and myriad other specialized fields serving the industry.  In addition, there are insurance brokers, which have traditionally posted enviable profits.  Insurance brokers represent the interests of corporate clients while finding their customers the best coverage at the best rates.  Elsewhere, banks such as Wells Fargo are doing reasonably well in the sale of insurance products, particularly annuities and life insurance.  Investment companies like Merrill Lynch (now part of Bank of America) have been eager to sell insurance to their customers as well.

While there are tens of thousands of small insurance firms worldwide, the industry tends to be concentrated in a few hundred major companies, many of which enjoy brands that are household names.  A handful of these top firms operate on a truly global scale.

In the world’s leading economies, regulators are in the process of forcing vast changes in the regulation and oversight of financial services firms of all types, including insurance underwriters.  The focus is on making risks held by such firms more transparent, and maintaining sufficient levels of capital to cover potential losses.  The insurance industry has gone through significant scrutiny and oversight as a result.

Health coverage is a major component of the insurance field.  Health spending in the U.S., at about 18.2% of Gross Domestic Product (GDP) in 2018, is projected to grow steadily.  Health care spending in America accounts for a larger share of GDP than in any other country by a wide margin.  Despite the incredible investment America continues to make in health care, 8.7% of people in the U.S. (28.0 million) lacked health care coverage for the entire year of 2017.  For some, insurance was unavailable or unaffordable.  In other cases, a lack of insurance was due to a personal decision not to pay for it. 

In March 2010, President Obama signed the Patient Protection and Affordable Care Act (ACA), designed to strengthen insurance company regulation and provide medical coverage to millions of uninsured Americans.  The act called for sweeping changes.  Provisions taking effect within the first six months of signing included coverage for adult children up to age 26 on their parents’ policies; making it unlawful for insurers to place lifetime caps on payouts or deny coverage should a policy holder become ill; and new policies are required to pay the full cost of selected preventive care and exempt such care from deductibles. 

Online health care insurance “exchanges” began enabling consumers to shop for health coverage.  A 3.8% unearned income tax is levied on individuals earning more than $200,000 per year and families earning more than $250,000 per year, to fund the programs in the act.  As of 2016, employers, with the equivalent of 50 full-time employees, which do not offer health benefits will pay a fine per full time staff member if any of the workers receives a tax credit to buy coverage.  A similar fine took effect in 2015 for employers with the equivalent of 100 full-time employees.  Most businesses with more than 200 employees are required to enroll all staff automatically in health insurance plans.  Also, the government began fining citizens who choose not to have health insurance.  Consumers whose annual incomes do not exceed set amounts may receive financial assistance if they purchase their own health insurance.

Despite the immense effort and expense, many Americans are greatly disappointed in the results of the Affordable Care Act.  Insurance policies sold under the exchanges had 2017 premium increases averaging roughly 25% for mid-level “Silver” coverage plans.  Some locales saw massive increases.  For example, Birmingham, Alabama’s Silver plans increased 71%, while those in Phoenix, Arizona rose by 145%.  The number of insurance firms offering coverage via the exchanges plummeted.

Increases in Silver plan premiums for 2018 were forecast to increase by roughly 20%.  While the 2017 increases were largely an attempt by insurers to raise premiums sufficiently to cover their surprisingly high health coverage expenses, part of the 2018 increases may have been due to uncertainty on the part of insurers as to whether or not federal government support of coverage for certain categories of individuals would continue.  Increases proposed for 2019 are much lower than those of 2017 and 2018, but still may create a substantial burden to some families.

Enough residents of Colorado signed a petition that a Constitutional Amendment 69 was placed on the ballot for November 2016, which would have provided universal healthcare for all Colorado residents.  Although the amendment did not gain approval, largely due to unhappiness with the vast state tax increases that would have been be required, the effort was a clear indication of continued consumer discontent with current health market conditions.

The Trump administration has been focused on altering the ACA.  The act’s mandate that Americans must carry insurance or face penalties has been dropped.  More consumer control over care and insurance may be emphasized, while Medicare may be given the power to negotiate drug prices.