Mature Markets Are Still Important and Offer Both Value and Growth
The reports of the death of mature markets have been greatly exaggerated.
- Bill Pieroni
- April 2022
My column “The Misguided Pursuit of Developing Markets,” which appeared in the January issue of Best's Review, uncovered the flaws in the conventional wisdom that insurers must look to developing markets for growth. Is the flip side of that coin—that mature markets are oversaturated and offer little opportunity for expansion—also flawed? In a word, yes. As Mark Twain might say, reports of the death of mature markets have been greatly exaggerated.
Global Growth and Value Pools
In ACORD's recent country-by-country analysis of over 11,000 carriers worldwide, “mature markets” were defined as those with higher-than-average penetration of insurance as a percentage of GDP, but lower-than-average growth. The goal of our research was to determine how demographics, economics and other local factors influence growth and value capture across countries, and to measure the past, current and future profit levels in each market.
Collectively, the 100 countries examined represent over 98% of global gross written premiums. Of these countries, 25 meet the criteria for mature markets.
Outcomes and Performance
The 25 mature markets, unsurprisingly, have robust overall economies, comprising more than 55% of global GDP. Their share of the global insurance industry is even higher–these markets account for over 75% of premiums written worldwide.
However, this does not mean these markets are oversaturated and stagnant. In fact, they demonstrated a 10-year premium growth rate of 2.4%—nearly as high as the 2.9% achieved by developing markets (excluding China and South Korea, which already are among the 10 largest markets in the world).
More importantly, that growth is strongly correlated to value capture—mature markets generated more than 90% of worldwide value. Over the 10-year period studied, mature markets achieved an average 98.7 combined ratio, compared to 99.5 for developing markets. Clearly, mature markets tend to be consistently more profitable over an extended period of time.
Opportunities and Execution
The lesson here is that insurers should not summarily engage in premature abandonment of mature markets. These markets are not a zero-sum game, with competitors fighting tooth and nail over profitable market share. Yes, insurers must compete for their segment—but these are large, growing markets.
There are some common characteristics across most mature markets:
- Insurers in mature markets tend to spend more on total loss than in developing markets, with lower underwriting expenses. Established practices and data availability make the underwriting process easier, while regulatory concerns, customer sophistication and the threat of competitors drive higher loss costs.
- Customers in mature markets are driven by security and value. While they are keenly aware of price, they are experienced consumers who understand their relationship to carriers and intermediaries. They tend to value the expertise and service provided by independent agents. Customer satisfaction should be a high priority.
- To generate sustainable value, insurers must execute across all four fundamental strategies: operational excellence, customer intimacy, product leadership and innovation. Excelling in only one or two of these areas is not enough to successfully compete in mature markets.