The world insurance market enjoyed revenues of US$2.155 trillion in 1998 (7.4% of global GDP) (Table 8-2). Although insurance penetration is relatively low in developing countries and economies in transition, their insurance market growth rate averages approximately twice that in industrialized countries. Expenditures on insurance in developing countries typically represent between 0.5 and 4% of GDP, compared to 5-15% percent in developed countries (Swiss Re, 1999c). With 36% of total global insurance premiums, North America is the largest regional market (see Chapter 15), closely followed by Western Europe at 32%. Reinsurance is particularly focused on high-value loss situations, in developing countries, or for smaller primary insurers. Reinsurers typically collect US$100 billion in premiums globally each year from primary insurers from whom they assume various (mostly property) risks.

The P/C insurance segment represented 41% of global industry premiums collected in 1998. As shown in Figure 8-4, the segment as a whole exhibits sensitivity to major natural disaster events, as evidenced by the reductions in U.S. insurer profitability during 1992 (Hurricane Andrew and Iniki) and 1994 (Northridge earthquake). A list of the most costly events is presented in Table 8-3. Over the past 15 years, the global ratio of P/C premium income to natural catastrophe losses has decreased from 351:1 to 122:1—almost a three-fold rise in "exposure" (Figure 8-5; see Figure 15-6 for North America).

Climate- and weather-related risks faced by life/health insurers include injuries or death resulting from extreme weather episodes, water- or vector-borne diseases, degraded urban air quality, pressure on the quality and adequacy of food and water supplies, and increased vulnerability to power failures (see Chapters 4, 5, 9, 15; TAR WGIII Chapter 8; World Bank, 1997a; Epstein, 1999). In some areas, climate changes may yield health benefits, but negative health impacts are expected to outweigh positive ones if no actions are taken to adjust (Chapter 9). Such impacts will not be significant for the global financial sector in the near term, because life/heath insurance penetration currently is low in developing countries; the burden will fall largely on the informal and government sectors.

Owing to structural changes underway in the industry, the financial distinction between life and P/C insurers is blurring somewhat as a result of consolidation and mergers. Life insurers also are major holders of real estate and providers of mortgage lending; thus, they participate as property owners in weather-related property risks and may additionally assume property risk as investors in catastrophe bonds or other weather derivatives.

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