The insurance market is a $3.4 trillion business worldwide. According to a recent study by the Brazilian National School of Insurance (Funenseg by its Portuguese acronym), this market is growing faster in emerging economies, and forecasts for total global revenue point to 2.5 percent average annual growth over the coming years.
According to economist Claudio Contador, Director of the Brazilian Federation of Insurance Companies and Director of Funenseg, there are many good reasons to expand this market. For instance, insurance improves and strengthens domestic capital markets, increases the rates of savings and investment, helps increase GDP growth potential, and provides information about risk in business activities.
In addition, worldwide market trends show that growing economies require more insurance services, as families and companies are more vulnerable to risks. Globalization has created both challenges and opportunities for markets to became more competitive and consumers more aware, demanding and protected.
In Latin American countries, external investors looking for promising business environments in the region support insurance markets, in which Brazil plays a leading role as it has experienced quick growth in the insurance market in recent years.
During a presentation at IDB headquarters, Contador explained the major forces behind the growth of the Brazilian insurance market. According to his recent study on insurance and economic growth, “the macro factors of greatest impact in the growth of the insurance market are real income and the inflation rate.”
In the case of Brazil, the insurance market growth is correlated to stable and low inflation, especially in the 1990s. But this growth is also supported by deregulation, the opening of the domestic market to foreign capital in 1996, the adoption of international standards in 2003, and the opening of reinsurance to foreign capital this year, according to the expert. Thus, Brazilian legislation has been extremely important for ramping up the insurance market in the country, Contador said.
The study indicates that “economic growth does not necessarily generate growth in the insurance market, just as the insurance market can expand even in an unfavorable economic environment.” The Brazilian case illustrates how an insurance market expansion can occur despite mediocre economic growth, thanks to factors internal to the industry.
Experts pay attention to the insurance industry because it plays a multidimensional role in the globalization process by creating mechanisms and instruments for diversifying risks. Plus, it gets into areas that were until recently still largely in the public sector's domain, such as public pensions, encouraging private savings, creating social funds, and increasing productive investments.