Countries with low insurance penetration are forecast to post the fastest economic growth globally in the next few decades, and the challenge for the insurance industry will be to develop products and risk management that meets their needs.

The industry should grow sharply as emerging economies in Asia and Latin America post faster growth than Europe and the US.

But to tap into the increasing wealth of China, India, Brazil, Mexico and Turkey, insurers and brokers must convince some of the world’s least-insured populations they need cover.

Risk management is spreading to emerging markets, while growing middle classes are acquiring assets they want to protect, but the industry must develop products to meet new risks.

Lloyd’s Head of Asia-Pacific and Asia MD Kent Chaplin told last week’s Insurance Council of New Zealand (ICNZ) conference that the need for innovation will be greater than ever.

He says life, motor and health insurance tend to be the earliest purchases in countries where people have had no cover and financial literacy is low.

As people acquire wealth, one of their first purchases is likely to be a vehicle. Car cover accounts for nearly three-quarters of the personal lines market in China, while motorcycle is the fastest-growing cover in Indonesia, Mr Chaplin told insuranceNEWS.com.au.

Specialist commercial covers are growing alongside the rising demand for personal lines.

Mr Chaplin told the conference the influx of new capital to insurance presents a great opportunity.

Lloyd’s sees “good-quality capital from emerging markets supporting business from emerging markets. Having plenty of capital always provides a great opportunity to grow the franchise.”

This is particularly the case when funds are flowing from emerging economies and can be aligned to their risks and in the natural catastrophe market, which needs plenty of supply.

But Mr Chaplin says the new entrants need to understand the long-term nature of their investment and the capital needs to be “sticky”, so it is available to pay claims.

He told the conference the cost of natural catastrophe damage is rising every year, as is the insurance shortfall.

This presents a challenge for insurers, brokers, governments and business owners.

Governments need to invest more in mitigation, not only in building flood barriers and coastal defences but also in promoting building controls that minimise the potential for loss.

However Mr Chaplin says there is also plenty that can be done by the industry.

Business owners need to take a longer-term view, with better contingency planning to protect supply chains, and insurers and brokers have a role helping businesses be better prepared.

“The insurance industry needs to take steps to better understand risk in growth economies, enabling them to research and price new risks.”

Mr Chaplin says he can see how collaboration between government, industry and the community is working in New Zealand following the earthquakes – for example, building better data on risk.

“Everyone has talked about how complex the losses are and how unprecedented the event but they are getting on with it and working together. It is going to take a long time and people are frustrated, but they are very positive as well.”

He says New Zealand does not have the same potential for growth as emerging markets and must compete for capital, but it remains an attractive market to the global industry.