Insurance in Europe Profitability and the Macroeconomic Environment

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Table of Contents

Introduction
Cost Structure of the Industry
Economic Landscape in Europe, 2022 and Beyond
Changing Consumer Preference
Impact of Covid-19 on the Insurance Sector
Conclusion
References

Introduction

The insurance industry in Europe is one of the fastest-growing sectors in the world due to the high penetration and the increasing number of firms. The sector is segmented into health, life, and education and people buy depending on their needs. The assignment analyses the cost structure of the industry, the economic landscape in Europe, and how it relates to the insurance sector, changing consumer preference, and the impact of Covid-19 on the industry.

Cost Structure of the Industry

The cost structure of the insurance sector in Europe is segmented into premiums and claims. The total number of premiums paid in 2019 was €1.254 billion, representing a 4.5% decrease from 2018. In contrast, the total claims and benefits paid in 2019 were €0.997 billion, which represented another decline of 5.5% from the previous year (Insurance Europe, 2020). Total density was € 2.085 billion, representing another 4.1% decline from 2018, which recorded total density valued at €2.163 billion (Insurance Europe, 2020). At the same time, the total penetration of insurance services across Europe was 7.08%, which represented another decline of 0.09% from the previous year when the penetration rate was 7.55% (Insurance Europe, 2020). The Nordic region had 101, 297 premiums in 2019, which represented a 4.9% increase from 2018, when the premiums were 96, 556 (Statista Research Department, 2022). This region had the best performance in premium as compared to other regions in Europe due to the high penetration of insurance.

The performance in an insurance claim for the Nordic region is also better as compared to other European regions. In terms of claims, the region had 82, 26, which represented a 5.0% increase from 2018, when the claims recorded were 78, 374 (Statista Research Department, 2022). Several insurance companies in the Nordic region were 527 in 2019, while the number of people employed in the insurance sector in the region was 82, 567 (Insurance Europe, 2020). Central and Eastern had a total of 34, 371 premiums in 2019, which was a 3.5% from 2018 when the premiums were 33, 215 (Insurance Europe, 2020). The number of claims recorded in the region was 21, 379 in 2019, representing a 4.5% increase from 2018, when the claims recorded were 20, 456 (Insurance Europe, 2020). The number of insurance companies in this region in 2019 was 287. It was much lower than in Nordic countries, indicating that insurance penetration in the Nordic regions is much higher.

For life insurance, in the year 2020, there was a reduction in the total gross written premium in most European countries. Based on different kinds of business segments, health insurance is the only segment that performed well. Portugal and Finland recorded the highest decrease in gross written premium of over 30% each (Insurance Europe, 2020). The largest percentage of gross written premium was observed in Estonia, Malta, and Sweden. Each recorded a 19% increase, which was a good performance (Insurance Europe, 2020). Regarding the distribution of the change in gross written premium per country, Estonia recorded the best median growth at 11%, while Portugal recorded the worst decrease at 32%, followed by Finland at 21% (Insurance Europe, 2020). This low performance in Portugal and Finland can be associated with the economic downturn brought by the Covid-19 pandemic.

Economic Landscape in Europe, 2022 and Beyond

In terms of GDP, the European countries with the largest GDP as of 2019, before the advent of the Covid-19 pandemic was Denmark with a GDP of €3,435,210,000,000, Estonia with a GDP of €1,245,331,000,000, France with a GDP of €2,418,997,000,000, Italy with a GDP of €1,787,664 and United Kingdom with a GDP of € 2,523,312,000,000 (Insurance Europe, 2020). These countries have witnessed a significant improvement in investments and industrial output, which has led to a rise in GDP (Insurance Europe, 2020). Purchasing power parity of the individual European countries has also been on a constant rise over the past few years. The overall purchasing power parity was 1.000000 for the whole of Europe in 2019. The Czech Republic had one of the highest purchasing power parities at 18.1484 (Insurance Europe, 2020). High GDP and high PPP in most European countries indicate that the unemployment rate is low, and people have access to a good job and business and indeed, the number of Europeans with access to insurance services has increased over the years.

The insurance sector across Europe has played a great role in transforming the economy of the European Union. It encourages economic transactions by offering risk sharing and indemnification; it has motivated companies and individuals to utilize safe practices in their daily activities. The sector has also promoted stability in the financial systems of individual European countries by enabling increased investment into other sectors of the economy (Insurance Europe, 2020). Lastly, the sector has encouraged the development of the savings culture across Europe. It is also one of the biggest employers in Europe. According to data by the Insurance’s Europe’s members association, a total of 945,035 Europeans were employed across the various segments in the sector by 2019 (Insurance Europe, 2020). This represented a 2.2% increase from 2018, when the total workforce in the sector was 924, 832. Denmark had the highest number of citizens employed in the sector in terms of individual countries at 290, 850. Other countries with the highest staff in the sector included France and the United Kingdom.

Changing Consumer Preference

Some of the key consumer preferences and trends that have shaped the insurance industry include most clients prefer virtual meetings with their insurance agents or provider due to fear of contracting the virus. These virtual engagements between the providers and customers will likely increase in the next few years as customers find it more convenient to engage virtually rather than visit the agents (Insurance Europe, 2020). With the healthcare crisis brought by Covid-19 and the high possibility of new mutants of the virus emerging, consumers have found it appropriate to register into health insurance and increase their savings. This is a huge opportunity for insurance firms across Europe, which, until 2020, had low penetration across the region due to the unwillingness of the people to join insurance.

Impact of Covid-19 on the Insurance Sector

The Covid-19 pandemic had both negative and positive effects on the insurance industry. The negative impact is that it led to the closure of millions of businesses across Europe and hence high unemployment rates. Thus, many people could not afford to renew their premiums (Insurance Europe, 2020). On a positive note, the pandemic’s health effects have made many people take their health seriously and buy life and health insurance.

Conclusion

Despite the past two years being difficult economic years for Europe, the insurance region remained resilient and continued to grow. Due to the pandemic, the economic downturn in Europe forced governments to borrow more money to finance economic recovery efforts. Many European governments utilized the money to support the private sector, which led to more people getting employed again. Such increased the number of people paying their insurance premiums on time and improved the cost structure and penetration of the insurance sector.

References

Insurance Europe. (2020). Insurance statistics. Web.

Statista Research Department. (2022). Insurance industry in Europe, statistics and facts. Web.

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