Insurance industry attractiveness
Spain has the sixth largest insurance market in Europe in terms of gross written premium, after the UK, France, Germany, Italy and the Netherlands, and the 12th largest in the world. The value of the gross written premiums in the Spanish insurance sector grew from EUR54.3 billion (US$74.4 billion) in 2007 to EUR59.6 billion (US$82.9 billion) in 2011, at a CAGR of 2.3% during the 2007-2011 period. The industry is also considered to be a major contributor to the country’s economy with a penetration rate of 5.6% of the country’s GDP, leaving Spain in the 26th place in the world ranking in 2010.
Gradual improvements in the economic condition of the country resulted in an increased investor confidence, which led to a 4.6% growth in the overall insurance industry in 2011, after it declined 6.0% in 2010. The industry is well developed with both domestic and foreign insurers offering a comprehensive range of products. Life insurance companies dominated the industry with a combined market share of 49.9%, whereas non-life insurance providers accounted for 37% of the market in 2011.
The sales in the life insurance segment registered a growth of 6.3% in 2011, offsetting the overall decline in the industry. The life insurance sector grew at a CAGR of 6.4% during the 2007-2011 period, supported by increased demand for Insured Pension Plans and guaranteed investment products. The gradual recovery of households disposable income, as well as the implementation of Solvency II setting out new risk management requirements for life insurers, are expected to strengthen consumer confidence and encourage life insurance sales in coming years.
The non-life insurance segment declined from EUR24.5 billion (US$33.6 billion) in 2007 to EUR22.0 billion (US$30.7 billion) in 2011 at a CAGR of -2.6% during the 2007-2011 period. The economic crisis and low industrial activity have suppressed the demand in the sector affecting industry’s profitability. Motor and property insurance were the main lines of the segment representing more than 90% of the non-life insurance industry. The gross written premium of both motor and property insurance declined at a CAGR of 1.8% during the 2007-2011 period, which has led to an increased consolidation in the industry with the number of non-life insurance companies declining from 195 in 2007 to 171 in 2011.
The Spanish financial market is supervised by three different regulatory bodies: Banco de España, Securities Market National Commission and DGSFP (General Directorate of Insurance and Pension Funds). DGSFP is a department within the Ministry of Economy and Competitiveness (MEC) responsible for the supervision of private insurance companies. The shrinking state budget is expected to be a major challenge for the implementation of new international prudential standards by the Spanish insurance supervisory authority.
In terms of distribution, non-life insurance policies were mainly sold through agencies, whereas bancassurance channel dominated the life insurance and personal accident and health segments. Insurance agencies accounted for a 34.6% market share of the non-life insurance, while bancassurance generated 80.3% of the new business premium in the life insurance segment, and 44.9% in the personal accident and health insurance segment in 2011. The direct sales distribution channel remained small and has started to grow only in recent years.
The Spanish life insurance sector is predominantly driven by guaranteed products. In 2011, the segment recorded a growth of 6.3% in terms of premium generation, after it contracted in 2010 following an increase in the volume of surrenders. The weak economic conditions in the country affected sales of life insurance products, particularly pension, group life, group superannuation and term life, leading to an overall decline in the value of written premiums collected. However, compared to other European countries, the Spanish life insurance has only been moderately affected, dropping by 5.9% in 2010, whereas life insurance premiums in the UK declined by 6.5%.
The life insurance sector in Spain is well developed, accounting for a 49.9% share of the market in 2011. Furthermore, the segment holds nearly 80% of the total insurance industry assets. The sector consists of a significant number of life insurers, which increased from 100 in 2007 to 113 in 2011, and comprises international groups. The top 10 life insurers accounted for 57.7% of the market in 2010, with Vidacaixa leading the market with a 14.5% share.
Despite Spain’s troubled economic position, life insurance has experienced a CAGR of 6.4% during the 2007-2011 period. The global economic turmoil and the European debt crisis have played a key role in putting underwritten profits of life insurers under pressure. However, factors such as interest rate normalisation, high solvency and product innovation are expected to drive the growth of the life insurance segment. The growing aging population in Spain, deficits in pensions and a shrinking workforce will sustain the long-term demand for life insurance and private pensions.
The life expectancy in Spain is 82 years, which is higher than that of the OECD average of 80 years. The life expectancy for women is 85 years, whereas for men it is 79 years. The changes in the public pension system, such as an increase in retirement age, have turned Spanish population’s attention towards private pension plans, promoting life insurance policy sales over the 2007-2011 period.
Looking at the ratio of active to retired persons, there were 8.75 million pensioners in Spain in 2010, which is double the figure recorded in 1980 and half of what is expected in 2040. The falling birth rate and rising life expectancy in Spain will contribute to higher life insurance policy withdrawal rate. The segment is expected to record a growth of 4.7% in the next few years, with premium earnings set to increase from EUR29.75 billion (US$41.42 billion) in 2011 to EUR37.47 billion (US$52.18 billion) in 2016.
The distribution network of the Spanish insurance industry is predominantly made up of bancassurance, agencies, direct marketing and other distribution channels. In 2011, bancassurance led the Spanish insurance distribution channels, followed by insurance agencies and brokers. Bancassurance accounted for 43.8% of the new business in 2011, whereas agencies and insurance brokers represented a market share of 21.5% and 13.2% respectively. During the 2009-2011 period, the number of insurance and reinsurance mediators registered an increase in the Spanish insurance industry. In the non-life segment, insurance agencies and brokers dominated the distribution network.
Bancassurance was a leading distribution channel in the life insurance segment in 2011, followed by insurance agencies and direct marketing, and accounted for 80.3% of the segment’s written premium. Consumer confidence in banks and transparency of operations were the major factors driving the growth of bancassurance in the 2007-2011 period. The developed banking system and alliances between banks and insurers provide customers with better access to purchasing insurance. Most recently, Groupama signed a bancassurance agreement with Bancaja in 2009, to sell life insurance policies.
The large bancassurance network has facilitated sales of the Spanish life insurance policies, and the value of the premiums collected through this channel increased by 75.7% in the period between 2007 and 2011, reaching EUR16.42 billion (US$22.86 billion) in 2011. The competitive viability of bancassurance as a distribution channel from the cost efficiency point of view has also contributed to the channel’s success, and its market share is expected to reach 87.1% in 2016.
The insurance agencies channel is the second largest distribution channel in the Spanish life insurance segment, and contributed to 7.5% of the premiums collected in 2011. However, insurance agencies’ market share decreased by 22.4% in 2011, and the channel is further expected to lose its importance due to increased dependence of life insurers on their banking partners, with its market share dropping to 3.9% in 2016. The market share of direct marketing is also projected to fall from 6.1% in 2011 to 5.0% in 2016. Despite the decline in market share, direct marketing is anticipated to surpass insurance agencies and become the second largest distribution channel in the years to come.