Number 15

Credit volume is a key economic variable that influences various areas of the economy, including insurance activity. It plays a pivotal role in stimulating consumption and investment, two macroeconomic factors that directly influence all areas of insurance activity, in both the Non-Life insurance segment (Motors insurance, policies for household, commercial, and business property, or personal injury coverage) and the Life insurance segment. This includes insurance associated with granting credit (in case of the death, incapacity, or disability of the debtor), which also serves as a guarantee to creditors of direct or indirect loans (through coverage of collateral associated with credit), which contributes to the stability and good operation of the financial system.

Globally, the relationship between credit and insurance demand is particularly significant when comparing insurance premiums to the volume of household and company credit (see Chart 1).

Credit cycles can be extremely significant for the economy and, by extension, for the insurance industry, as they affect variables like new housing construction, real estate prices, or new vehicle registrations. They also impact nominal GDP and private consumption, which have repercussions on all areas of the insurance industry. Emerging markets and developing countries have much lower credit-to-GDP ratios than developed markets, which have stronger capital markets and better credit ratings. These advantages enable their economies to sustain higher levels of debt without, in principle, causing financial stability issues (see Chart 3).

However, as history has shown, the uncontrolled expansion of credit has also generated profound economic crises in these markets (as happened in Japan in the 1990s or in the United States in 2008), triggering a crisis with global repercussions.

In addition to focusing on financing from the banking system, it is critical to highlight the importance of the development of the capital market, the mechanism through which various economic agents access financing, an environment where banking financial intermediaries are often the traditional protagonists. The United States is a notable exception, with a credit system more oriented towards capital markets, where a large portion of business financing comes directly from these markets, through a wide variety of financing instruments and deep primary and secondary global markets that facilitate their liquidity.

In bank-based financial systems, such as those of Europe, banking entities are the main intermediaries that convert deposits into loans, assessing borrower risks and assuming these risks on their balance sheets. Thus, in countries like Germany, France, Italy, and Spain, banking penetration has been central to financing, especially for households, small and medium enterprises (SMEs), and sectors such as real estate. A developed capital market connects institutional investors, such as fund managers and insurance companies, with companies seeking capital for growth, diversifying their sources of financing. This investment model is particularly important for startups, growing companies, and strategic sectors, such as technology or renewable energy, among others, a pending issue in the European Union, which is trying to improve this through the Capital Markets Union initiative.

Meanwhile, emerging markets and developing countries need improvements in their financial infrastructure, both in banking and capital markets, overcoming barriers such as lack of physical access to financial services, low digital connectivity, and widespread distrust of the system. Establishing networks of branches, correspondent agents and technological improvements, accessible digital payment platforms, in addition to simplifying requirements to open accounts and designing inclusive financial products, are steps that must be addressed by public policy in those countries.

Demographic trends since the end of the 20th century, characterized by a sustained drop in birth and mortality rates, and the resulting increase in life expectancy, have significantly impacted the composition of the population by age group. This change in the population’s age structure in many developed countries, and increasingly in emerging ones, is characterized by the progressive aging of the population, with a growing proportion of people approaching retirement age, who also benefit from an increase in life expectancy.

This demographic change, which is essential for analyzing the potential of insurance activity, also has an impact on bank lending. Most studies on this topic conclude that one of the consequences of population aging is a contraction in credit. This trend is largely attributable to the lower risk appetite of older individuals, the decline in household savings rates, and banks’ diminishing willingness to take on risk as a result of population aging. Credit demand often follows a life cycle pattern, peaking during the working years of younger, productive individuals and dropping to relatively low levels toward the end of their careers.

At the following link, you can find the study Credit and insurance activity, prepared by MAPFRE Economics, which provides a more detailed analysis of the relationship between credit and insurance activity, along with an examination of a selection of representative markets. This selection covers key regions around the world: North America (United States), Latin America (Mexico and Brazil), Europe (United Kingdom, Spain, and Germany), and Asia (Turkey, South Korea, and Japan). In all cases, we have utilized extensive historical data, comparing the weight of the evolution of the three largest components of credit to the non-financial sector—government, household, and non-financial company credit—as well as the level of banking penetration.