Global Insurance Report 2023: Closing the personal P&C protection gap

GlobalInsuranceReport2023:ClosingthepersonalP&Cprotectiongap Despiteoverallgrowth,personalP&Clinesarelosingmarketrelevanceandfacingagrowingprotectiongap,withacleardichotomybetweenlocalwinnersandlosers.What’snext? ThisreportisacollaborativeeffortbySelmaBelghiti,AnaBrito,KiaJavanmardian,JoséMiguelNovo,SirusRamezani,andAshishSrivastava,representingviewsfromMcKinsey’sInsurancePractice. March2023 Contents ii Introduction 01 PersonalP&Cindustrylandscape 07 ChallengesfacingpersonalP&Cinsurance 13 RoadmapforpersonalP&Cin2023andbeyond 23 Gettingstarted Introduction Despiteaslowdownduringtheheightofthepandemic,personalpropertyandcasualty(P&C)insurancehasseenannualgrowthof3percentsince2019.PersonallinesstillrepresentmorethanhalfofglobalP&Cgrosswrittenpremiums(GWP),butagrowingprotectiongapinbothdevelopedanddevelopingcountriesindicatesthatinsurersstruggletodesignproductsfitfor theevolvingandemergingrisksthatmodernpersonal-linesconsumersdemand. Theprotectiongaphasanumberofdirectandindirectcauses.Indevelopedeconomies,customers’personalP&Cinsuranceneedsarechangingsignificantlyandrapidly—particularlywhenitcomestomotorinsurance,giventhatconnectedcarsandthesharingeconomyaretransformingpricingmodelsandriskprofiles.Extremeweathereventsarewreakinghavoc,withincreasedflooding,tropicalstorms,wildfires,anddroughtschallengingtraditionalriskassessmentandunderwritingmodelsinpropertyinsurance.Cybersecurityriskisontherise,andmanyinsurersarestrugglingtoproperlyquantifyriskexposure,adjusttermsandconditions,andconsequentlywintheconvictionofreinsurancecapacity.And e-commerceisbecomingindispensable,1bringingaheightenedriskofonlinefraudandtheft. Developingeconomies’populationsalsoremainunderinsured,withpremiumslargelyfor nonmandatoryproductssuchashomeowners’insurancestillrepresentingasmallportion ofpeople’sincome—mostlydrivenbylimitedpurchasingpowerandalackofawarenessaboutthebenefitsofpersonalP&Cprotection.InLatinAmerica,personalpropertyinsuranceasaportionofincomeisjust0.12percentofGDP,comparedwith0.32percentforWesternEurope.2 Theindustryisgrowingoverall,butamoregranularassessmentshowsthatlocallyfocusedscalelargelydefinesagivenpersonalP&Cinsurer’scompetitivestance.Regionalwinnersarelikelytocontinuetoretainmarketshare,benefitingfromthecapabilitiestheyemployedtoachievetheircurrentleadershippositionandfromtheirinvestmentcapacitygoingforward.Moreglobally,personalP&Cinsurancewilljoinallindustriesincontendingwithinflationinthenearterm,puttingadditionalpressureonmargins.Inflationwillalsohaveclearimplicationsfortraditionaloperatingmodels—specificallybyrequiringfasterfeedbackloopsbetweentheclaims,actuarial,andpricingfunctions.Insurersmustrecalibratetheirproducts,distribution,andtechnicalmodelsforacustomerbaseandanemployeepoolwithhigherstandardsthanever. ThisisthethirdandfinalchapterofMcKinsey’sGlobalInsuranceReport2023.3 1“Becomingindispensable:Movingpaste-commercetoNeXTcommerce,”McKinsey,November15,2022. 2McKinseyGlobalInsurancePools. 3ToreadthefirsttwochaptersonlifeinsuranceandP&Ccommercialinsurance,see“GlobalInsuranceReport2023:Reimagininglifeinsurance,”McKinsey,November16,2020;and“GlobalInsuranceReport2023:ExpandingcommercialP&C’smarketrelevance,”McKinsey,February16,2023. iiGlobalInsuranceReport2023:ClosingthepersonalP&Cprotectiongap Insurersmustrecalibratetheirproducts,distribution,andtechnicalmodels foracustomerbaseandanemployeepoolwith higherstandardsthanever. 1 PersonalP&Cindustrylandscape In2022,theinsuranceindustrysurpassed $6.5trillioninGWP,withP&Crepresentingalmostone-thirdoftotalrevenues.ThepremiumvolumesofboththeglobalinsuranceindustryandP&Chaverecoveredfromthepandemic(Exhibit1);however,globalinsuranceprofitsstillhaveyettosurpassprepandemiclevels,and2022P&Cprofitslagged2019levelsbyabout10percent,sufferingfromacuteinflation. PersonalP&Cinsurancesawanaveragethree-yearCAGRof3percentfrom2019to2022,comparedwith1percentduringtheheightofthe GlobalInsuranceReport2023:ClosingthepersonalP&Cprotectiongap1 Exhibit1 Theoverallindustryhasbeengrowing,butthegrowthofpersonalpropertyandcasualtylineshaslaggedbehindthatofcommerciallines. Globalinsurancegrosswrittenpremiums(GWP), $billions1 CAGR, Globalpropertyandcasualty(P&C)GWP, $billions1 CAGR, GlobalP&Cafter-taxprofits,$billions1 HealthP&CLife 2019–22,% 7 5 2 CommercialP&CPersonalP&C 2019–22,% 7 3 2,5592,475 2,748 1,786 1,743 2,019 1,565 1,462 1,800 5,7655,825 6,566 1,743 1,786 2,019 8%decrease 144 149 132 9931,002 1,097 784 750 922 201920202022E +4.4%p.a.2 201920202022E +5.0%p.a.2 201920202022E Note:2022isanestimate.Figuresmaynotsum,becauseofrounding. 12021averagefixedexchangerateused. 2Perannum. Source:McKinseyGlobalInsurancePools McKinsey&Company pandemic—better,butlaggingP&Ccommercial’sgrowthof7percentsince2019,fueledbyrateincreases.4PersonallinesrepresentmorethanhalfofGWPinglobalP&C,butcurrentgrowthandprofitabilityheadwindsconstituteaclearcalltochangethecourseandregainrelevanceinanincreasinglycomplexnearfuture. AcloserlookatP&CmarketnuancesshowsthatpersonalP&Cinsuranceremainsaloc