Shifting Dynamics in Global Insurance: Navigating Fragmentation and Economic Headwinds
The global insurance industry is entering a period of slower growth and greater complexity. According to the Swiss Re Institute’s latest sigma report, premium growth is expected to flatten significantly in 2025 due to macroeconomic challenges, policy uncertainty, and shifting geopolitical dynamics. Global real GDP growth is forecast to decline to 2.3% in 2025 (from 2.8% in 2024), affecting both the non-life and life insurance sectors.
Macroeconomic Environment and Trade Policy
A central theme of the report is the economic impact of new US tariffs – currently at their highest levels since the Great Depression. A baseline 15% effective tariff rate has been implemented, with sector-specific rates (e.g., 25% on autos) and country-specific tariffs (e.g., up to 145% on Chinese goods) creating a more fragmented trade landscape. These measures are expected to contribute to higher inflation in the US and disinflationary pressures elsewhere, particularly in Europe and China.
The insurance implications are multi-faceted. In the US, tariffs are likely to increase claims severity in sectors such as motor and construction. Motor repair and replacement costs are forecast to rise by 3.8% in 2025 (compared to a previously expected decline), and construction costs by 3.6%. However, these increases remain well below the double-digit inflation seen in 2021 and 2022.
Outside the US, the effects of tariffs on insurance are expected to be more limited and, in some cases, may even dampen inflationary pressures. Nevertheless, slower economic activity is likely to reduce demand in some insurance lines, particularly those linked to international trade, such as marine, trade credit, and engineering.
Insurance Market Outlook
Global insurance premiums are projected to grow by 2% in real terms in 2025, down from 5.2% in 2024. Non-life premiums are expected to grow by 2.6%, and life premiums by just 1.0%. The slowdown in the life sector follows a strong year in 2024 (+6.1%) and reflects shifting consumer preferences in uncertain financial markets, with increased demand for savings products offering capital guarantees.
Despite the softer growth outlook, profitability across both life and non-life sectors remains positive. In non-life, investment income is becoming a more important driver of profitability, with return on equity forecast at 9.7% from 2025 onward. Life insurers are also benefiting from higher investment returns, with the return on investment expected to rise to 4.0% by 2027.
Longer-Term Considerations
The report highlights that ongoing geopolitical and economic fragmentation could present structural challenges for the insurance industry. For example, restricted capital flows and reduced international risk diversification could lead to less efficient capital allocation, higher insurance costs, and wider protection gaps. While the industry has so far demonstrated resilience – such as the US P&C sector’s capital surplus of USD 1.1 trillion at the end of 2024 – there is growing need to adapt to a more regionally focused and less predictable environment.
To read the full sigma report, visit the website of the Swiss Re Institute.