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SIRC 2017

 

Finding Ideal Partners

As the world changes so does reinsurance, being a huge global business with more than half trillion in capital.

The strategic thrust to spread risk geographically that pleases rating experts so much, has made the RI business global. Yet, the search for partnerships within each geography is local, and often even reinsurers believe that local presence woos or rues the day. This is where reinsurers hold the key: can they lead the partnership and hence lift their risk partners to higher ideals, or do they follow the lead of their clients? All partnerships drift without a leader, even if we all accept the rule of equal partners.

With industrialisation, globalisation and digitalisation that know no boundaries, the risks get more global too. The risk landscape changes ever so fast, making each renewal more challenging and daunting.

Reinsurance Score Sheet

Where goes reinsurance in this space? Some say the market is shrinking. Growth is stuttering and profit margins are down. Some say the weight of regulations and compliance are weighing down the market. Some say a few of the new risks, like cyber, are so complex, pervasive and expansive to be critically assessed at any point in time, let alone price it correctly or realistically underwriting it. Some are looking beyond insurance – government or capital market instruments, like ILS, which work in the more advanced markets in Asia, like Australia and Japan.

Leader of the Risk Game

Are reinsurers the leaders of the risk game? Whatever the answer, the reality is that everyone looks to reinsurers for more support and more partnership, given their market-knowledge, technical savvy, risk exposures and risk awareness.

Yet reinsurers are bound by long-term relationships and ties to their clients and cedants, which sometimes weigh over technical risk considerations.

That’s how reinsurance works. Reinsurance is not a transactional business: Pay today and disappear tomorrow; or putting it in the business-sense, cedants cannot expect to collect today and not allow reinsurers to recoup from them tomorrow, and remain sustainable to be there for you tomorrow. Despite all the Nat CATs they face, because of their Japanese cedants mindset and grace, reinsurers still queue to woo Japanese business on a priority basis.

The reality is that everyone looks to reinsurers for more support and more partnership, given their market-knowledge, technical savvy, risk exposures and risk awareness.

Long-term Partners

In the search for partnerships, one must be mindful in a long-term partnership, with both parties respecting the survival needs of either party. It is almost like a marriage with an annual renewal clause, said an old timer, who has been there, done that and is still loving all the rejections.

It is not about price, it is about coverage and who is providing the coverage. But all these are linked to the price too. Insurance and reinsurance buyers who buy for peace of mind to know that their risks have been managed, must look beyond price and today’s budget. Is there a formula for this? Quarterly P&L and short-termism continue to distract. So we plod along looking for new partners as in today’s world no partnership is exclusive.

Will the 14th SIRC with the dynamic theme: “New Partnerships in Reinsurance” reveal the secret to success and long-term survival to find the ideal partner? The bewitching hour approaches. Quick, find the perfect red apple to cut to see your ideal reinsurer!

 

 

Asian Reinsurance: Narrowing Profits Amid Stable Markets

Shifting from an operational model that relies on domestic proportional business to one that provides value-added consulting is a challenge that many Asian reinsurers will have to work through for future growth, says Ms Christie Lee, Director, Analytics – A.M. Best.

The Asian reinsurance market has shown remarkable stability in recent years. In fact, since the catastrophes of 2011 weighed down reinsurers’ results in 2011 and 2012, the market has been quite stable, with only limited volatility. As well, many Asian reinsurers have very strong home markets, which has allowed them to expand overseas through reciprocal business, especially in the early stages of an overseas expansion.

Lurking behind this stability, though, is the worrying trend that Asian reinsurers are finding it difficult to grow both their top and bottom lines. A glut in reinsurance capacity and growing retention by the direct industry are obvious threats. An even greater challenge is the weakening value proposition of Asian reinsurers’ business models. It is clear that these companies will have to revisit their strategies for their own long-term survival.

Another concern is that the industry’s stability has come hand-in-hand with a narrower profit margin. Moreover, Asian reinsurers’ stability could be viewed as stagnation when their major cedants grow faster in terms of premiums and capital size, due to oligopolistic market structures and a trend towards personal lines. That means that, even as their risk-adjusted capital remains steady, Asian reinsurers are being increasingly dwarfed in size and scale by those they are supposed to protect.

China and India

Among reinsurers in the region’s fastestgrowing markets – China and India – GIC Re of India posted very strong growth over the last year, owing to the country’s government-sponsored crop insurance program coupled with relatively weak solvency capital at GIC Re’s cedents. China Re, on the other hand, saw a slow-down in top line growth (on a local currency basis), due mainly to a decline in its non-life reinsurance premium, which came about because of an increase in reinsurance capacity across China, as well as a decrease in reinsurance demand because of solvency regulation changes that alleviated pressure on the company’s cedents.

Regardless, long-term growth prospects for reinsurers in China and India remain high in both absolute and relative terms. That’s good for companies in those markets, though it also means that more players are likely to enter, bringing intense competition to both markets.

Regardless, long-term growth prospects for reinsurers in China and India remain high in both absolute and relative terms. That’s good for companies in those markets, though it also means that more players are likely to enter, bringing intense competition to both markets.

Reinsurance Industry Outlook

A.M. Best’s outlook for the reinsurance sector worldwide is negative, due to the significant and ongoing market challenges that will hinder the potential for positive rating actions over time and may eventually translate into negative rating pressures. The sector is in the later stages of a soft market, with strained risk-adjusted returns as compression continues to bear down on underwriting margins. Investment yields, meanwhile, offer little help. The current market headwinds present significant longer-term challenges that industry participants need to work through – and those companies that are not proactive will not lead their own destiny.

In Asia, one way reinsurers can remain relevant is by providing value-added consultancy and services in exchange for the ceding premiums, rather than just capital. The major challenges that cedents face is not a lack of (reinsurance) capital, but rather issues such as developing cost-efficient personal lines, pricing, segmentation and product innovation in detariffed environments, and realising expense savings. However, they will be competing against major global reinsurers that offer such ancillary services and have significant resources at their disposal.

Strong and increasing competition will be a challenge not just in the big markets of China and India, but all across Asia, exacerbated by the fact that while the domestic book comprises the main portion of business for many Asian reinsurers, only a few of them actually enjoy dominant positions in their domestic markets. Regulatory protection of the growth in domestic retention may buy time, but it won’t reverse the persistent growth in competition. Some reinsurers might try to increase premium retention to offset top-line pressure and spread expenses over a higher premium base. With competition in their own markets increasing, they may want to venture into smaller markets that are overlooked by the large players.

Over the past year, new reinsurers have been attracted to the China and India markets. Regionally, though, the number of potential start-ups currently being discussed has declined from previous years, which somewhat reflects current market conditions. Moreover, given the need to shift from an operational model that relies on domestic proportional business, to one that provides value-added consulting paid for by ceded premiums, smaller domestic reinsurers may also seek out alliances with mid-sized global reinsurers. However these reinsurers may have the appetite, but not the scale, to efficiently expand into the Asian markets.

 

 

The capital efficiency gap – the key to addressing the global underinsurance crisis

Paul Mang, global CEO of Analytics at Aon, offers his views on how the industry should frame the global underinsurance challenge and strike a path forward

Aon Benfield’s most recent Annual Global Climate and Catastrophe Report highlighted a familiar theme: total economic losses from worldwide natural disasters continued to be many times greater than insured losses. This so-called “protection gap”, which stood at US$156 billion in 2016, is prevalent globally; even in the United States, which accounts for 56% of global insured losses but only 28% of global economic losses, the protection gap was nearly 50% in 2016.

The protection gap seemingly presents many opportunities for (re)insurers, but while underinsurance is indeed a problem, stakeholders need to take a more comprehensive approach to risk management to ensure that losses are being spread in the most efficient way.

At Aon, we view the challenge of underinsurance through the lens of a “capital efficiency gap” – we build on the concept of the protection gap metric, but advance the dialogue with a more nuanced framework that looks at the total cost of the risk in the context of natural catastrophes.

Using a total cost of risk (TCOR) approach, the sum of insurance premiums, administrative risk control costs, and retained losses, are all instrumental in calculating the capital efficiency gap and identifying the most cost-effective ways to manage and reduce risk. TCOR is not a new concept, but it has yet to be widely applied to systemic problems. The 2017 Aon Global Risk Management Survey indicates that even for businesses with more than $25 billion in revenue, just 57% use TCOR to guide their risk management and insurance decisions. By integrating TCOR into disaster risk and resilience, governments and businesses will be able to allocate capital more efficiently.

Adequate coverage

When looking at different scenarios from a capital efficiency gap perspective, the use of not only insurance, but also financial tools beyond insurance – such as development finance, derivatives, and sovereign debt – can help economies and societies better mitigate potential losses from natural disasters. An understanding of these dynamics can help elected officials, finance managers, policymakers, and business executives take a more prudent approach to safeguarding their interests.

Quantifying the true financial impact of natural disasters is a complex challenge in the context of the capital efficiency gap. For example, The University of California, Davis, estimated that the agriculture industry’s economic losses during the 2015 California drought totalled $2.7 billion, but less than $500 million was insured. Of the total, direct losses accounted for $1.8 billion, of which $1.25 billion was from sources such as crop yields and associated revenue losses that were insurable.

However, $590 million was incurred due to increased costs from pumping water and job losses, which were partially absorbed by rising food prices. While the increases were significant for certain crops, the US Department of Agriculture estimated total food price inflation at only 3.5% for the year. Job losses would be partially absorbed by the state through unemployment claims and a drop in demand from employers. Assuming output losses were fully insured, operational costs would still increase to continue production. Coverage also wouldn’t lower food prices, as the lost output still exists. Instead, insurance would mitigate employment losses by helping farmers stay in business and keeping money in local economies. In agricultural markets where derivatives play a role, these products can also reduce the risk of price volatility through hedging.

When looking at different scenarios from a capital efficiency gap perspective, the use of not only insurance, but also financial tools beyond insurance – such as development finance, derivatives, and sovereign debt – can help economies and societies better mitigate potential losses from natural disasters.

Efficient use of capital

So in looking at the capital efficiency gap, (re)insurers need to harness the full range of products and options, understand how uninsured losses affect economies of different scales, recognise where other financial solutions have value, and educate clients on TCOR. SMEs and households in particular need more engagement from the industry to help them think about TCOR on a smaller scale.

Better engagement with financial institutions and governments at every scale is needed, and the Insurance Development Forum, established in 2016 to address the issue of the protection gap, represented a good start in the process. Insurers are well-placed to focus on chronic risks and find new ways to offer financial protection to infrastructure.

Technology and innovation are creating new ways of pricing and transferring risk, and analytics can help assess risk and determine where insurance makes sense. Only through innovation can economies and societies absorb the economic losses of disasters in an efficient way. Closing the capital efficiency gap is critical not only to our industry but also to the lives and livelihoods of individuals, households, and business owners across the globe.

 

 

Walking down the SIRC memory lane

With the SIRC becoming an annual affair this year, we take a walk down memory lane right from its humble beginnings in 1991.

This year marks the 14th SIRC. A biennial affair since its humble origins in 1991, the event has grown into a must-attend, now annual stalwart of the annual reinsurance calendar. As we embrace this year’s theme of “New Partnerships in Reinsurance”, we look back at some of the discussion points from past milestone editions of the SIRC.

1st Singapore International Reinsurance Conference

6-9 October 1991
Theme: "The Challenges of Reinsurance into the 90s"

The first-ever SIRC was hailed a success and attended by around 316 participants from 28 countries, defying an initial cool response from those who thought there were too many meetings close to renewal season. In fact, many felt that the SIRC thus served as an effective marketing forum to make contacts. The jury was still out then on whether there are too many reinsurers in the region, with local authorities promoting Singapore as a regional centre, while others felt that the insurance cake was too small to share with foreign players. Asian reinsurers were advised to venture very carefully into overseas markets only after enhancing their capitalisation, or “stay in your own market”.

There was recognition that all reinsurers have significantly increased their real exposure, as they have to accept risk against capital and not against a retrocession programme, with the shortage of capacity forcing many reinsurers to use supporting non-catastrophe business to access further retrocession capacity from reinsurers, who do not actively participate in the retrocession market.

4th Singapore International Reinsurance Conference

5-8 October 1997
Theme: "Riding the Wave of Competition in the Wake of Greater Market Liberalisation and Consolidation"

Reinsurers were asked to grant Singapore offices more autonomy at the 4th SIRC, with the Second Finance Minister saying that in his view, those who established their Singapore offices as the regional centre of excellence “have a valuable competitive edge over others.”

Discussions that year also highlighted the rising threat of “alternative risk markets” to traditional insurance, and called for insurers to come up with more innovative products to meet customer expectations to hold their own. Soft rates at the time and low returns caused some concerns about underwriting profitability, particularly in Japan in the wake of “Big Bang” reforms. Then-Chairman and Chief Executive of SCOR Jacques Blondeau predicted that the Big 4 would grab a larger slice of the reinsurance market.

8th Singapore International Reinsurance Conference

September 25-28 2005
Theme: "Can Reinsurance Cycles in Asia be Managed?"

The four C’s – Catastrophes, Cycles, Capital and Capacities took centre-stage at the 8th SIRC, shortly after Hurricanes Katrina, Rita and Typhoon Damrey wreaked havoc in the US and Asia, and with the Indian Ocean tsunami occurring just the year before. With the growing number and severity of Nat CATs, then-Executive Director of the Insurance Supervision Department at MAS, Low Kwok Mun called for reinsurers to reconsider their pricing models and risk management strategies to ensure that they meet their obligations.

Discussions also highlighted the need for modelling and strategic risk management, and for risks to be simulated and priced properly. The tsunami brought lessons on clearer policy wordings and pointed to larger issues concerning coverage and moral obligation towards the insured.

Tackling the conference theme, participants also said that reinsurance cycles can and must, be managed and it is the responsibility of management to implement and ensure the sustainability of a consistent market for all.

11th Singapore International Reinsurance Conference

30 October - 2 November 2011
Theme: "Asia's Growth - Are We Capitalising On it?"

2011 was the first time SIRC was held at the Marina Bay Sands, which had just opened in 2010. The key message in the official MAS keynote address was that reinsurers need to work with regulators, and one area that needs the collaboration of both parties is in their collective understanding of Asian risks in order to quantify and price these correctly. These risks include not only Nat CATs, but must also include a deeper understanding of pandemic risks, mortality trends, cross-border risks and changing production chain patterns.

Meanwhile, industry keynoter Dr Nikolaus von Bomhard of Munich Re said that disciplined financial steering and a responsible management culture must be the foundation of profitable growth. He viewed Asia as having the potential to pull the world economy out of the gloom, with the insurance industry an enabler in this process. Other issues discussed included diversification, Thai floods and the “stinking” pricing of Nat CATs amid higher capital costs.

 

 

Is blockchain the new transformational tool for reinsurers?

Mr Paul Brenchley, Insurance Advisory Partner at KPMG Singapore briefly discusses the transformation benefits of blockchain technology for the reinsurance industry.

Even though blockchain technology has been around for a number of years, it has not been until recently that we have seen significant interest from financial institutions in the adoption of this technology. Banks have been leading developments in the financial services space, with the insurance industry now rapidly playing catch-up as they start to fully appreciate the potential uses of blockchain technology.

Blockchain is essentially a permanent and immutable record of transactions within a network. At the root of the blockchain are “digital ledgers” that are distributed amongst all network participants to serve as a common source of truth. When a transaction occurs, it is recorded in sequence in the digital ledger and these “blocks” are then tied together into a blockchain. Since the system relies on references to other blocks that are cryptographically secure within the digital ledger, it is viewed as almost impossible to falsify. The system is believed to be immensely more trustworthy and transparent than many traditional approaches to sharing data.

Is blockchain the great enabler?

Tremendous opportunity is perceived within the reinsurance industry as many processes are still highly manual and complex, involving multiple parties. As blockchain provides a mechanism to establish a single version of the “truth” that is shared in near real-time, it creates conditions to enable faster, more accurate and more efficient processes.

At KPMG, we see a number of uses of blockchain technology within the reinsurance industry that have potentially significant transformational benefits. These include using blockchain technology to:

Enable fast and efficient information sharing between multiple parties. As an example for large complex claims, all claims assessment information produced and collected could be shared instantaneously with relevant brokers, insurers and reinsurers to the contract, to provide an indisputable record when verified by the network.

Using blockchain increases information transparency as all parties would be privy to the same information; reduces operational costs associated with information distribution and storage; and can speed up the assessment of the estimated cost of a claim and payment.

Develop smart contracts that automatically trigger claims payments or premium adjustments with the primary insurer leading to improvised workflow automation for policy creation, claims notification and pay-outs between brokers, insurers and reinsurers. To add on, the digital automation of the associated bordereau reporting would reduce associated operational costs.

A number of more proactive reinsurers are exploring the benefits of blockchain technology across their own businesses. In doing so, many have seen not only transformational benefits in a number of areas, but also wider benefits in the development of a broader insurance blockchain-based solutions with multi-party involvement.

Some of KPMG’s blockchain use cases in Singapore

Through KPMG’s Digital Village innovation ecosystem in Singapore, we have been active in the development of blockchain use cases for the financial services industry, by undertaking a number of blockchain related projects including:

  • Blockchain-enabled shared KYC platform for banks in Singapore
    KPMG is supporting an initiative that includes sharing KYC data between a number of banks, to explore how a common KYC standard can be instituted with a particular focus on performance, reliability, and data security through blockchain technology.

  • Smart contract enabled usagebased travel insurance
    KPMG has developed a value proposition for a single sign-up, usage-based, pay-as-you-travel insurance model with automatic claims validation and pay-outs given at specific events. KPMG explored how smart contracts using blockchain technology with a variety of publicly available and customer-provided data sources, could be bought together in one travel product.

  • Streamlined hospitalisation claims payouts for a life insurer
    KPMG is developing a hospitalisation insurance product concept, which aims to provide immediate pay-outs through smart contracts to support families and individuals during hospitalisation periods.

For further information see “Blockchain accelerates insurance transformation” by KPMG
https://home.kpmg.com/xx/en/home/insights/2017/01/blockchain-accelerates-insurance-transformation-fs.html

 

 

What insurance executives expect from the ASEAN Economic Community (AEC)

 

The following article is based on the recently launched ASEAN Insurance Pulse 2017, prepared by Dr. Schanz, Alms & Company and exclusively sponsored by Malaysian Re. Based on in-depth interviews with executives from 35 companies and organisations from 8 different ASEAN countries, Dr Kai-Uwe Schanz and Mr Wan Murezani Wan Mohamad summarise the insurancespecific opportunities and challenges anticipated from AEC.

The ASEAN Economic Community (AEC) was formally launched on 31 December 2015 as a major milestone in regional economic integration with the aim to ultimately create a single market with minimal economic barriers in order to facilitate the movement of goods, services (including insurance), investment, capital and skilled labour.

2020 has been identified as a potential milestone for the ASEAN insurance industry; even though there is no specific timetable yet, cross-border trade in insurance services is set to be liberalised first. It usually covers relatively simple and commoditised insurance products, such as motor or term life insurance. The member states have repeatedly reaffirmed their commitment to open marine, aviation and transit (MAT) insurance, reinsurance and retrocession, as well as catastrophe insurance markets first.

Against this backdrop, according to our research, 49% of executives polled believe that AEC will be a positive development for their respective companies in the next five y ears. M ost e xecutives e xpect A EC to grow the available insurance pie in their markets by promoting competition, innovation and governance. The most immediate benefit is expected to arise from the cross-border provision of motor, health, marine, aviation and transport (MAT) and engineering insurance.

Fairly positive on liberalisation

Sixty-three percent of participating executives anticipate AEC to benefit their domestic insurance markets at large. Innovation and improved customer awareness and satisfaction are set to present opportunities to all market participants. However, the impact is expected to be evolutionary, not revolutionary.

Fifty-one percent of executive interviewees believe that non-life insurance penetration (premiums as a share of GDP) will increase as a result of AEC. This effect is particularly likely in lower income countries.

Fifty-seven percent believe that AEC is a major opportunity for global multinational insurers in particular, based on their superior experience with cross-border expansion, in-depth expertise, strong balance sheets and well-known brands.

Almost all interviewees expect Singapore to benefit most from the AEC as the Lion City is likely to further consolidate its position as a regional (re)insurance hub for the provision of cross-border services.

Almost all (94%) executive interviewees consider regulatory differences a major obstacle to AEC insurance integration. The most frequently mentioned specific items include varying minimum capital and solvency regimes, significant differences in reinsurance regulation, divergent insurance and tax laws, as well as inconsistent approaches to product filings and policy wordings.

Eighty-six percent of interviewees consider a common regulatory framework across ASEAN very useful. Improved governance was most frequently mentioned as a key attraction, followed by the prospect of greater consistency of regulatory, legal and taxation frameworks as well as the opportunity to conduct business abroad in a cost-efficient (cross-border) way.

Sixty-nine percent of executives believe that, medium-term, AEC will result in higher solvency capital requirements in their respective home markets. One key driver is the expected convergence of solvency regimes towards Risk-Based Capital (RBC) models.

Seventy-four percent of polled executives do not consider AEC a threat to their respective insurance business over the next five years, even though 95% expect that the liberalisation measures envisaged will increase the degree of competition in the region’s insurance markets. This is generally viewed as positive as long as effective regulatory oversight counterbalances increasing co petition.

Having said all this, 83% of survey participants miss a clear direction for the AEC insurance integration initiative, in particular, a reasonably meaningful timetable or industry-specific blueprint which would support strategic decision-making at company level. There is clearly a need for additional communication efforts in order to maintain the region’s insurance industry’s positive and open-minded stance to the proposed liberalisation measures.

Dr Kai-Uwe Schanz is Chairman of Dr. Schanz, Alms & Company AG. Mr Wan Murezani Wan Mohamad is Head of Research at MNRB Holdings Berhad.

63% of participating executives anticipate AEC to benefit their domestic insurance markets at large.
 

 

China’s Belt and Road initiative - Growth and opportunities

China’s Belt & Road Initiative (BRI) is a development strategy proposed by China that focuses on connectivity and cooperation – with investments of US$4 trillion including infrastructure, highlights Dr Shen Yiming, Senior Vice President, Head of China Client Services, Asia at Marsh.

The land-based “Silk Road Economic Belt” and the ocean-going “Maritime Silk Road” will affect 4.4 billion people with a collective GDP contribution of US$2 trillion. BRI underlines China’s push to take a larger role in the global economy, and the desire to coordinate manufacturing capacity with other countries. President Xi has pledged to funnel an additional CNY100 billion (US$14.5 billion) into the Silk Road Fund, while the China Development Bank and the Export-Import Bank will set up new lending schemes of CNY250 billion (US$36.2 billion) and CNY130 billion (US$18.8 billion) respectively.

The most obvious winners from China’s new strategic move are banks, construction companies, infrastructure investors, consultants, professional services firms, equity fund managers, and exporters. Asian companies will get more opportunities as the Chinese government, banks, and enterprises invest in B&R countries, especially for infrastructure projects.

Opportunities for ASEAN

B&R strives to promote Chinese capital and technological investment into ports, transport routes, and other infrastructure in order to improve resource distribution, market integration, and allow for better facilitation of trade and investment within ASEAN. For example, B&R will take China’s rail expertise into Southeast Asia. On 1 November 2016, China Communication Construction Company (CCCC) signed a business contract with Malaysia Rail Link for a railway project on the east coast of Peninsula Malaysia, with a contract value of some MYR46 billion (US$10.8 billion), its largest overseas project ever.

Singapore will also benefit by attracting businesses to operate out of this trading and investment hub and tap on growth opportunities in the Asian region. The island-state has also established itself as the second leading offshore hub for RMB trading. The country is expected to rise in prominence as the shipping and aviation hub of Southeast Asia, in addition to witnessing an increase in trade and personnel exchange across the region as a result of the construction and development of ports, airports, and other facilities.

Challenges

The opportunities that the B&R initiative brings also result in some risks and challenges, as it will pass through diverse countries spanning Africa, Asia, and Europe, exposing participating companies to political, credit, and security risks. Numerous countries receiving Chinese financing already bear elevated debt levels and B&R will weaken their sovereign credit position further.

Insurance

B&R could benefit many classes of insurance. The more than 60 countries that are to be connected by land and sea, together with their 4.4 billion inhabitants, are for the most part developing markets with great economic potential. This could throw a new focus on both Chinese and other insurance markets concerned – particularly in the area of marine insurance. B&R could translate to an estimated commercial insurance premium of US$10.6 billion in the Southeast Asian region till 2030 (Swiss Re estimates). In terms of lines of insurance, this is broken down to $5.3 billion in Property, $3.9 billion in Engineering, $1.3 billion in Marine and $0.2 billion in Liability.

Chinese firms more aware of Insurance

Chinese firms are learning quickly and their risk awareness and insurance purchase behaviour has been changing in recent years, from reactive to proactive. For public-listed companies, a robust risk and insurance programme is part of good corporate governance. Many stakeholders in large infrastructure projects (project owners, contractors, and lenders) also require a comprehensive insurance programme covering a wide range of risks.

The Chinese government, through the State-owned Assets Supervision and Administration Commission (SASAC), has also issued guidelines governing State- Owned Enterprises’ (SOEs’) overseas investments from an enterprise risk management perspective. Previous mistakes committed in overseas investments, and lessons learnt have pushed Chinese firms to elevate their risk awareness.

Today, Chinese firms and their Asian JV partners are more proactive and mature in risk management and risk transfer. They are not only protecting their assets, but also liabilities, people, and returns on investment.

This article has been edited for brevity from a contribution to the October 2017 Asia Insurance Review issue.

 

 

Bringing new partners to the table

Leveraging on the best of digital technology be it for new products, better processes or more effective distribution is the order of the day, and reinsurers will have an important role to help insurers accelerate a digital-led transformation. The following is a snippet of a recent roundtable discussion among reinsurers and RI brokers, hosted by Asia Insurance Review.

The reinsurance sector can remain a rich source for innovation and new ideas for the insurance industry, said Mr Philip Hough, Managing Director for Asia Pacific at Aspen Re in a recent roundtable discussion.

He said the next big innovation may likely follow a similar track to that of alternative capital into the CAT space – for which reinsurers and reinsurance brokers have played an important role by acting as a distribution channel.

“You have highly talented people sitting in places like Silicon Valley with no access to our industry and I see reinsurers being a type of distribution for them as well to bring them into the (re)insurance space, particularly in the area of new technologies, big data and analytics.”

“I see our role as facilitating that process and who knows, in five to ten years that could become part of the norm.”

Although for that to happen, reinsurers would have to make the necessary adjustments to better align themselves with the changing landscape, he said.

“Our industry is ripe for disruption and we should look at how we can be more efficient, relevant and valuable.”

He said that as there was a lot happening in the (re)insurance space, “reinsurers generally need to modernise ourselves as the reinsurance model is still rigid for many of the market players”. He made the call that “reinsurers need to see how we structure our distribution and tailor our products to align ourselves with the opportunities and needs in the (re)insurance space.”

Investing in Fintech Start-ups

Like many leading industry players, reinsurers have also been actively investing in and/or partnering with fintech startups. But it has led some to question if reinsurers are in a way betting against their traditional client base.

“Do you believe that your existing client base are going to be the ones that collaborate and survive, or do you believe that there is a fundamental conflict in terms of capability and offering?” wondered Mr Mark Morley, Managing Director at Willis Re (Asia Pacific).

Ms Jayne Plunkett, Regional President and CEO Reinsurance (Asia) at Swiss Re said she sees many traditional insurers working in the same direction as fintech firms.

“I don’t see it so black and white. Some of the insurance companies are quite advanced in the technology field and they are playing a big role and driving a lot of the innovation.”

Mr Roland Eckl, CEO for Asia Pacific (Japan, Korea, India & Southeast Asia) at Munich Re, added: “There are companies who share with us that they’ve set up an innovation unit and handpicked certain people to lead it. We clearly feel that embracing the change is definitely the right approach to the market changes we currently see, and those are the players we are keen to collaborate and partner with. On the other hand, we see other clients who still have a lower level of engagement.”

“It’s ultimately every client’s decision on how much they want to invest, where they set their company goals in five years’ time and how they want to position themselves.”

Engaging the energetic young

However, Mr Eckl believes that disruption is bound to occur in the industry – with it being a matter of when, rather than if. He summed up the energy at Silicon Valley as amazing, with young potentials having both smart ideas and the financial backing to disrupt the industry. “And one of them will eventually do it,” he said.

Ms Ann Chua, Head of Northern Asia & Operating Director, Asia Reinsurance at XL Catlin Re said: “It’s about engaging this new avenue, they have creative minds and we need to engage them.”

The full version of this story is available in the November 2017 edition of Asia Insurance Review.

 

 

Do not take ‘one-size-fits-all’ approach, says Aon Benfield

Reinsurance broking giant Aon Benfield is optimistic that reinsurers will assess any potential rise in rates on a client-to-client basis rather than adopt a global increase in pricing at the 1/1 renewals.

Speaking to Asia Insurance Review last week, Chief Executive Eric Andersen said: “We are pushing hard for reinsurers not to take a ‘one-size-fits-all’ approach but to look at each client based on their geography and how their portfolio is performing. So far, the feedback from reinsurers has been positive.”

In the wake of heavy third quarter CAT losses of approximately US$100 billion – and with 2017 set to be one of the costliest years in the industry’s history of CAT losses – it is almost certain that rates would move. The question is whether it would be a global push or largely confined to the loss-affected areas.

Many have cited the differences in the market today compared to post-Katrina in 2005, namely being that (re)insurers now boast much stronger balance sheets as well as the abundant supply of alternative capital available.

The ILS market has become a real force in the Nat CAT and retrocession space, and has proved its value following the recent series of catastrophe events. However, market observers wonder how any losses will affect the behavior and strategy of ILS investors moving forward.

While conventional wisdom suggests that capital would flow in following a major loss and thus temper price increases, alternative capital providers are now more much more savvy operators and would likely time their re-entry into the market, said Mr Andersen.

“They are acting like experienced players in the market and monitoring their losses. I think they are trying to evaluate the market dynamic and see what happens to pricing before they commit.”

Growth opportunities

While recent loss events are dominating the agenda in the reinsurance segment, the search for growth remains an on-going priority for many companies. Moving into 2018, Mr Andersen sees opportunities for Aon Benfield to grow and innovate in three key areas: government liability, corporate liability and rising exposure to emerging risks.

“Rising exposure to cyber risk continues to be a big topic, and we are also looking hard at credit – whether that is mortgage, credit cards or others – where we can bring reinsurance underwriting skill to structure risk transfer solutions to cover these risk pools. We are also looking to bring the private market into areas where risk has been pushed to governments, like flood or terrorism.”

Fending disruption

While the industry has to embrace change brought about by the technological revolution, Aon Benfield believes that existing players still have the edge over InsurTech firms due to the high level of regulatory requirements in insurance.

“InsurTech players have found that the industry is tightly regulated and it has affected them, but we’ve learnt to live in that world. For example they may have designed trading platforms, but the reality is that it’s not enough to have that technology as you need to be a licensed broker in London, plus you also can’t just launch a product in other territories.”

In its recently launched Global Insurance Market Opportunities report, Aon put forward the concept of ‘open architecture innovation’ as a way for (re)insurers to collaborate with InsurTech firms to bring benefits to all parties.

The study highlighted that the fastgrowi ng entrepreneurial InsurTech segment – that has secured approximately $14 billion in investments to date across more than 550 start-ups globally – could be an enabler rather than a disruptor of the traditional insurance model.

Established organisations play an important role in open architecture innovation, by collaborating in a framework which has both standards that enable scalable solutions for clients and the flexibility that encourages entrepreneurial innovation.

The report also revealed that three of the leading areas where analytics can help with insurance industry growth – cyber risk, casualty catastrophe risk, and pathogen risk – could become increasingly insurable through collaborations with InsurTech companies, and technology and analytics providers, thereby opening up new opportunities for insurers and reinsurers to provide new and enhanced products.

 

 

Driving digital change

In digital transformations, the CEO is even more critical because of the magnitude of change, the degree of disruption, and the power of inertia. Leaders need the ability to sift through an avalanche of digital initiatives, manage accelerating innovation cycles, and reshape the organisation around new approaches, say Messrs Martin Danoesastro, Grant Freeland and Tom Reichert of The Boston Consulting Group (BCG).

Here are five key tips for CEOs to follow:

1. Learn from the outside but stay true to your DNA

Established companies need to embrace the innovations that are powering the digital economy. Digital natives such as Uber, Airbnb, and Spotify successfully attacked the taxi, lodging, and music industries by meeting customer needs in new ways and taking advantage of technological innovation. Equally important, these companies have created new operating models and cultures.

Incumbents need to learn from the successes of these disruptors and carefully study how they can broadly apply new ways of working, new levels of customer service, and new technology platforms to their own organisation. But companies should take care not to abandon their core strengths and culture. An organisation that has been around for 50 or 100 years or more has enduring and proven qualities that do not just vanish in the digital age.

2. Follow the map, trust the terrain

Vision creates intention and establishes direction and ambition. Plans lay out responsibility and deliverables. Vision and plans are both critical requirements in a transformation. But digital transformations require room for course corrections. It is impossible to button up every last detail and identify the transformation’s precise landing place.

Leaders need to be adaptive, and articulate a broad strategic outline and the purpose and context for change. But they also need to be open to feedback and be able to course correct. One way to become more adaptive is to perform more frequent reviews. Quarterly business reviews replace annual planning cycles. Course corrections happen weekly or even daily instead of monthly.

3. Place many bets

In the same way that leaders must establish a broad vision but allow for improvisation, they also need to take more than one approach to digital transformation. The level of volatility and ambiguity in the market makes it impossible for leaders to know precisely what will work and what technological and analytical capabilities they may need to acquire. There are at least two types of bets that companies should consider:

Open Innovation

Companies that have successfully transformed themselves generally participate in broader digital, innovation, and mobile ecosystems. They tap into developments beyond the organisation and let outsiders improve upon their bundle of products and services.

Portfolio Construction

In terms of deal making, partnering, and venturing, digital transformations are built on many small, manageable bets. Companies should evaluate dozens of different approaches, investments, and partnerships; pilot or incubate a few; and then build and scale up only the most promising. These exercises need to occur in the context of the overall vision.

4. Digitise the organisation

Companies need to do hundreds of things right to create a digital organisation, but three stand out above the rest.

Firstly, how best to ensure momentum and success? Ideally, the CEO and senior and business line leaders will drive the digital transformation. But for some companies, especially those just beginning the journey, it may make sense to appoint a digital leader who temporarily drives and coordinates all digital activities. The more disruptive the initiative, the more the CEO and digital leader will need to free the organisation from the shackles of legacy and habit.

The second issue is the related but broader question of what to centralise and what to decentralise: where will digital resources be located within the organisation and how will they be managed? The “right” answer depends on a complex interplay of forces. Either way, the CEO will need to manage the trade-offs between standardisation and experimentation and create roles and decision rights for digital activities.

Finally, leaders must introduce agile ways of working into their organisation. For traditional leaders who rose step by step along a hierarchy, agile can be disorienting. By design, agile teams are fast, cross-functional, experimental, and selfdirected. The role of leaders fundamentally changes in an agile organisation. They need to learn new behaviours and let go of old habits. Leaders in an agile organisation set the context and purpose, ensure alignment, and enable autonomy. Finding the balance between alignment and autonomy is the ultimate test of leadership during a digital transformation.

4. Build a talent pipeline

If a digital strategy is only as strong as the organisation that executes it, it is likewise only as effective as the people who execute it. Talent, almost always on a CEO’s short list of top concerns, becomes even more critical during a digital transformation. While it may be tempting to staff digital initiatives exclusively with outside hires, a more promising approach is to train current staff in digital capabilities.

 

 

Recent CAT losses reveal cracks in reinsurance

Hurricanes Harvey, Irma and Maria and the earthquake in Mexico have shown that the narrowing profit margins of non-CAT reinsurance lines are not sustainable. Mr Rene Lamer, Chief Executive, Singapore Branch of Sompo International elaborates.

Just prior to the Monte Carlo Rendezvous, the international reinsurance market had surplus capacity in most lines of business and was entering the January renewal negotiations with a confident attitude.

However, Mr Rene Lamer, who heads Sompo International’s Singapore branch, pointed out that even with this surplus, some longer tail lines were beginning to show strain, with companies re-underwriting or withdrawing entirely from them. “Certain lines of business were also tightening up, not because of lack of capitalisation, but because margins have become so thin, they are no longer sustainable,” he said.

Just a few weeks later however, four hurricanes, the California wildfires and the earthquakes in Mexico, are causing tremendous uncertainty over the magnitude of the losses for the industry and what the impact will be for the global market. According to Mr Lamer, the losses accrued by these catastrophic events are likely to expose inadequate returns across the majority of non-CAT reinsurance lines.

“Over the last few years, the market has experienced deteriorating rate environments across all lines of businesses. When you have a year with limited CAT losses, the profits from the CAT business strengthen the earnings. But when you have a year with heavy CAT losses, it draws attention to the non-CAT lines, which may not be performing well.”

He added: “Another factor is the increase in cost of retrocession after these events and its subsequent knock-on effects, which will have a significant impact on the market, particularly for underperformers. The retro market has always been a really good harbinger of a changing market.”

Exposing the weaknesses

Mr Lamer said the reinsurance business lines other than CAT that are showing a poor level of rate adequacy can be divided into two broad groups – general non-CAT short-tail lines and longer tail lines.

“Non-CAT short-tail lines, such as Property Risk, XL and Proportional, obviously have very thin margins, while longer tail lines wrestle with a weak interest rate environment and increased competition, and price inadequacy can be less obvious.”

“It’s not just CAT reinsurance pricing that has declined, it is across the board. We are really beginning to see that the overall price adequacy is lacking,” he said.

Impact of changing global weather patterns

As the devastation from the recent catastrophes have continued to accumulate losses, it is hard to ignore the impact of global weather trends and the effect it has on the industry and also on agriculture.

Sompo International has a strong presence in global weather and agriculture in both the insurance and reinsurance space, said Mr Lamer. “It is an area of growth for us because demand will be commensurate with increasing awareness of the uncertainties around global weather.”

Uncertain economic outlook is a concern

“From the macro level, economic risk is something we should not forget about, as we’re not out of the woods yet. I think the global economic outlook, while not absolutely terrible, has a long way to go before it will pick up,” he said.

The uncertainty has a lot of knock-on effects, with past patterns predicting future increases in frequency of large risk losses. “That tends to be a direct result of pricing and underwriting standards coming under pressure. Risk mitigation tends to deteriorate as cost becomes an issue. And direct markets, as well as reinsurers need to be aware of this. Deteriorating pricing coupled with an increase in frequency can create issues in the overall health of the market. For me, economic risk is essentially something we all need to keep top of mind.”

A further concern for Mr Lamer is the underwriting discipline, or lack thereof, in the market. “Particularly after the events of the last few weeks, we need solid underwriting discipline on the direct side as well as the reinsurance side, to recognise when pricing needs to change.”

“The market is going to be what the market is going to be. It’s difficult for any one company to change the market. At Sompo, we are well positioned for current and future markets. We will continue to focus as we have always done on disciplined underwriting, building strong distribution channels, and providing our clients with capacity and product diversification.”

But the reinsurance industry has been through tough times before, he said. “The wonderful thing about reinsurance is that it’s been around for a really long time; it is a tried and tested product, it really does work well. But I think we are in particularly trying times and the stronger companies with the best people, products, distribution and vision will prevail.”

 

 

Post-disaster reflections

In recent weeks, Hurricane Irma has f lown through the northern Caribbean as a Category 5 hurricane, before making landfall in the United States to become the first Category 4 landfall in Florida since 2004 (Hurricane Charley). And Hurricane Maria became the second landfalling Category 5 hurricane in a matter of weeks, when it struck Dominica and grazed St. Croix. The storm later crossed Puerto Rico as a high-end Category 4 – the strongest storm to hit the island since 1932 – resulting in catastrophic damage and impacts.

According to Aon Benfield’s latest Global Catastrophe report the overall financial toll of each storm is expected to reach well into the tens of billions. In each instance, public and private insurers faced payouts considerably exceeding US $10 billion.

In the same month, Mexico was hit by Tropical Storm Lidia, which killed 20 people when it tracked along Mexico’s Baja Peninsula, and three powerful earthquakes.

These included the strongest earthquake of 2017: a magnitude-8.1 event that struck offshore the state of Chiapas, followed by a magnitude-6.2 aftershock, which together killed at least 103 people. A magnitude-7.1 earthquake then struck central Mexico, killing at least 367 people and injuring thousands more.

The recent string of disasters ended a 4-year run of benign catastrophe losses, which was accompanied by a cumulative 50% drop in property insurance rates, according to various insurers and brokers.

Reinsurers recording huge losses

The effect of these series of catastrophes have had on reinsurers are not insignificant. Swiss Re reports a US $3.6 billion in net losses, while XL Group expects their 3rd quarter figures to drop by $1.48 billion. Lloyd’s estimated $4.5 billion in losses for syndicates in the market from Harvey and Irma alone.

Mr Mike McGavick, Chief Executive of XL Group, said that while the claims were significant they were within the company’s models and that the size of the claims arising from the hurricane and the Mexican earthquake may well trigger a new approach on pricing across the industry.

“In terms of the effects on XL itself, given the specific nature of the events themselves our estimated losses are largely in line with our expectations, and our capital strength and talented teams ensure that we remain positioned to continue solving the risk needs of clients and brokers,” he explained.

Will hardening ensue?

Mr W. Robert Berkley, Jr., CEO of W.R. Berkley Corporation said “It’s been a very competitive reinsurance market and the big question is what will be the response from the alternative capital segment. We’ll have to see whether this experience will make them pause and reconsider their appetite to take part in the market.

“As for the traditional reinsurers, I think it’s a chance to pause and see if they have assessed risk adjusted returns properly.” Whether rate increases will ultimately go through or be sustained remains uncertain because insurers and reinsurers still have plentiful of capital, and more alternative capital is waiting on the sidelines ready to come in if rates rise, several executives said.

Mr Kenrick Law, Regional CEO of Allianz Re Asia Pacific, pointed out that the Nat CAT season is not over yet. “Insurers and reinsurers are evaluating their claims losses from the earlier events and ongoing catastrophes, therefore it is not easy to gauge the market conditions at this moment.”

“Having said that, instead of fretting about the impact of hardened market rates and pricing wars, the industry should take a long-term view to increase protection, and it’s not just selling more policies to individuals, but helping governments and quasi government bodies to build mechanism that support a post-disaster scenario.

“There’s a significant opportunity in Asia for the industry to grow and help society, and I believe through more privatepublic partnerships involving (re)insurers, the awareness for risk can be translated into sustainable solutions. It’s about having more dialogue and being central to the broader discussion on resilience, and not insurance being an after-thought.”

 

 

The current state and near-term prospects for ASEAN non-life insurance markets

 

The following article is based on the just launched ASEAN Insurance Pulse 2017, prepared by Dr. Schanz, Alms & Company and exclusively sponsored by Malaysian Re. Based on in-depth interviews with executives from 35 companies and organisations from 8 different ASEAN countries Dr Kai-Uwe Schanz and Mr Wan Murezani Wan Mohamad summarise the current state and near-term prospects of the ASEAN non-life insurance markets.

ASEAN non-life penetration (premiums as a share of GDP) is a mere 1% of the global average, suggesting a massive catch-up potential. Hence, 69% of executives expect ASEAN non-life premiums to grow in line or faster than the Gross Domestic Product (GDP) over the next twelve months. Only 43% think that premiums will outgrow the economy at large, reflecting relatively lower growth in Malaysia and Thailand. For countries such as Indonesia, the Philippines and Vietnam premium growth is expected to continue outperforming.

The ASEAN region’s strong premium growth momentum is perceived to be the most relevant non-life insurance market strength. The second most frequently mentioned strength are the region’s favourable demographics, followed by the quality of existing insurance regulations in certain markets.

For most executives, the catch-up potential in terms of the very low insurance penetration is the most attractive medium-term opportunity offered by the regional market place, followed by a rapidly growing middle class with beneficial effects on personal lines business as well as AEC-facilitated cross-border expansion opportunities.

Pricing pressures

Two-thirds of the polled executives state that current rates in commercial lines are below the three-year average. This is a reflection of the global soft market cycle and the abundant supply of reinsurance capacity, exacerbated by country-specific factors such as the de-tariffication of large property business or a slowdown in construction activity. The assessment for personal lines is more favourable, with only 54% considering the current level of rates to be below the three-year average. Personal lines business is generally characterised by a smaller number of players, higher barriers to entry, greater customer loyalty and more scope for non-price competition.

The pricing outlook for the next 12 months, however, is challenging, especially for commercial lines business (with 69% expecting lower rates). Competitive pressures continue unabated while the supporting role of tariffs will further reduce. In respect of personal lines business some interviewees point to the feasibility of innovation-based rate increases in personal lines. Yet, 57% expect a continued deterioration of rates over the next 12 months.

The pricing outlook for the next 12 months, however, is challenging, especially for commercial lines business – with 69% expecting lower rates.

Fifty-one per cent of surveyed executives believe that technical profitability in commercial lines is below the three-year average. Relatively low loss ratios, supported by advances in risk management and low levels of litigiousness, continue to mitigate some of the pressure from eroding rates and rising acquisition expenses. Fifty-four per cent of executives think that technical profitability in personal lines is below the three-year average. Even though pricing pressure is less acute than in commercial lines business, claims inflation is taking a heavy toll on lines such as motor and medical business.

Cautious optimism

Sixty-nine per cent and 43%, respectively, of executives think that technical profitability in commercial and personal lines will remain on a downward trajectory over the next 12 months as the effects from further eroding prices are expected to prevail despite stable and still favourable claims patterns. The outlook for personal lines, however, is more sanguine, as a result of tightening underwriting and cost discipline, a strong inherent premium growth momentum and more scope for profitability-driven risk-based pricing.

Sixty-nine per cent of interviewees do not expect the region’s insurance markets to consolidate in the next 12 months. However, in the medium-term, it should become more difficult for domestic insurers to raise the additional capital potentially needed to meet new risk-based capital requirements, adding pressure for M&A.

As far as foreign insurers’ market share is concerned, most executives believe that the arrival of new entrants will be offset by some global insurers reducing their footprint in the ASEAN region, resulting in a stable market share over the next 12 months.

Dr Kai-Uwe Schanz is Chairman ofDr. Schanz, Alms & Company AG. Mr Wan Murezani Wan Mohamad is Head of Research at MNRB Holdings Berhad.

 

 

Hot InsurTech names in Asia

InsurTech is all the rage now, with the likes of Lemonade and its 3 second claim payouts in the US and German company Friendsurance with its P2P concept now conversation-starters even here in Asia. We highlight a few must-know InsurTech names in the region.

ZhongAn - China

This online-only insurer probably needs no introduction, after its Hong Kong IPO in September raised about US$1.5 billion. Founded in 2013 by the heads of three prominent Chinese companies – Alibaba, Tencent and Ping An Insurance, two-thirds of its 1,500 strong staff comprise engineers and data scientists, reflecting its tech focus.

RenewBuy, PolicyBazaar, CoverFox, Easypolicy - India

All four firms compete in the insurance aggregator and comparison tool space. While Policybazaar seems to be leading at this time, it is still early days – all have been promising enough to raise millions of dollars in capital investments in recent months.

PolicyStreet - Malaysia

Founded just this year, PolicyStreet curates a range of insurance policies from the common to the niche, targeting millennials. It has partnered with UForLife, an online insurance company by Tokio Marine Life and Hannover Re, to offer term life insurances.

PolicyPal - Singapore

The first fintech firm to graduate from the local regulator’s Fintech Regulatory Sandbox, PolicyPal is a mobile app which allows users to understand, track their existing insurance and buy new policies, in a convenient digital folder with all their insurance coverage. Founder Val Yap’s going places – she was named one of Forbes’ 30 under 30 this year.

GoBear - Singapore

Headquartered in Singapore since early 2015, GoBear is a comparison site for insurance plans and other financial products. It has since continued to expand in Malaysia, Philippines, Thailand, Indonesia and Vietnam.

Asia Risk Transfer Solutions - Singapore

ARTS provides enterprise software solutions that support the design, pricing and management of index-based Agriculture and Natural Catastrophe insurance, particularly in developing Asia. It has launched a crop platform in India and is now looking at China.

Claim Di - Thailand

This networked claims process enables car drivers involved in a car accident to communicate directly with their insurer, using handheld devices to capture photos or videos with time stamps and GPS and then uploading claim applications through the platform.

 

 

InsurTech Investment: Early stage funding volume up

 

 

RegTech: The financial industry’s new best friend?

RegTech has become one of the key areas to watch for insurers, says Mr Henri Arslanian, PwC’s FinTech and RegTech Lead for China and Hong Kong. He highlights five things you need to know it.

1. What is RegTech?

RegTech, short for regulatory technology, is the use of new technologies in the financial services industry to address compliance and regulatory challenges not only more efficiently but also more effectively.

There are now numerous RegTech startups globally tackling pain points, from KYC and client on-boarding to compliance monitoring and fraud detection, using some of the latest technologies, from big data analytics to artificial intelligence.

2. Why is the RegTech industry moving so quickly?

Unlike traditional FinTech or InsurTech, where there is an element of competition between financial institutions, RegTech is an area in which everyone could win by cooperating.

RegTech startups serve almost all B2B offerings and are not aiming to disrupt incumbents but rather to empower them. Thus, incumbents are not feeling threatened but are keen to further explore these new solutions. In addition, many financial institutions, including insurers, may potentially be happy to cooperate with their peers if that would result in substantial cost savings.

3. What challenges are RegTech startups facing?

In addition to the traditional problems faced by B2B FinTechs, from long sales cycles to lengthy procurement processes, RegTechs have to manage additional hurdles of increased IT and security approvals as they deal with sensitive areas such as risk or compliance.

Another challenge frequently faced by many of these RegTech solution providers is that they are highly dependent on the quality of data provided to them. For example, if the data provided by an insurer is noisy or inaccurate, then the output will not be insightful enough.

4. What do regulators think of RegTech?

It will come as no surprise that regulators globally have been encouraging the adoption of RegTech and in many cases becoming clients themselves.

Many of these RegTech solutions allow financial institutions to not only streamline their reporting but also to have better oversight of their data. This makes it easier for regulators when they need time-sensitive information from a bank or insurer. In addition, RegTech startups generally do not need to be licensed as they are mainly technology providers, thus making life easier for regulators.

5. What will happen to regulatory and compliance jobs?

While RegTech solutions may enable a reduction in headcount in compliance or regulatory roles, they are far from eliminating such roles entirely. Human talent is still needed not only from a governance or policy perspective but also to tackle the more complex cases where judgement and expertise are vital.

However, RegTech solutions can address the less risky, high-volume, and time-consuming roles which are costintensive for any financial institution.

 

 

Who will be crowned Asia’s best?

Close to 40 participants from all segments of the industry – including (re)insurers, brokers, service providers, risk managers and leading personalities in the market – made it to the finals of the 21st Asia Insurance Industry Awards (AIIA). These were shortlisted from over 400 entries received during the nomination period.

Judges of the Awards met in Singapore to evaluate submissions and voted in a secret ballot. The results were tabulated and audited by independent auditor KPMG, who were also present at the judging proceedings. The winners will be announced tonight at the AIIA gala dinner. Stay tuned!

Life Insurance Company of the Year

  • AIA Singapore
  • Cathay Life Insurance Co Ltd
  • Muang Thai Life Assurance PCL

General Insurance Company of the Year

  • Aetna International
  • Apollo Munich Health Insurance Co Ltd
  • Cathay Century Insurance Co Ltd

Educational Service Provider of the Year

  • Australian and New Zealand Institute of Insurance and Finance
  • The Malaysian Insurance Institute
  • The General Insurance Institute of Japan

Innovation of the Year

  • HDFC ERGO General Insurance Co Ltd
  • MetLife Asia
  • PT Asuransi Allianz Life Indonesia

Service Provider of the Year

  • Medix Global
  • RMS
  • ROAD CHINA ASSISTANCE
  • Willis Towers Watson

Corporate Risk Manager of the Year

  • Mr Gordon Song, Lazada Group
  • Mr Roland Teo, Eastern Health Alliance
  • Mr Steve Tunstall, Pan-Asia Risk & Insurance Management Association

Broker of the Year

  • Aon
  • Marsh Asia
  • Willis Towers Watson

General Reinsurer of the Year

  • Lloyd’s Asia
  • Munich Re
  • SCOR

Life Reinsurer of the Year

  • RGA
  • SCOR

Corporate Social Responsibility Award

  • Allianz Ayudhya Assurance PCL
  • Dai-ichi Life Insurance Company of Vietnam, Limited
  • Krungthai-AXA Life Insurance Public Company Limited

Technology Initiative of the Year

  • Bajaj Allianz General Insurance Company Limited
  • ICICI Lombard General Insurance Company Limited
  • Krungthai-AXA Life Insurance Public Company Limited

Digital Insurer of the Year

  • Bajaj Allianz General Insurance Company Limited
  • Cathay Life Insurance Co Ltd
  • FWD Singapore Pte Ltd

Personality of the Year

  • Mr Chris Wei, Aviva
  • Mr Marc Breuil, Berkshire Hathaway Specialty Insurance Company, Asia/Middle East
  • Mr Tapan Singhel, Bajaj Allianz General Insurance Company Limited
 

 

The party starts here

The 14th SIRC welcomed its delegates at the reception cocktail last night, amidst drinks and the best of Singaporean cuisine. Despite the gloomy weather, spirits were high throughout the day, as existing bonds were strengthened and new ones were formed.

The cocktail, graciously hosted and co-sponsored by GIC Re, marked the end of a successful first day of SIRC, where the international (re)insurance community came out in full force.

 

 

S’pore seeks to become ILS hub

Singapore has pledged to fully fund the upfront cost of local CAT bond issuances from 1 January 2018 through a newly-formed ILS grant scheme, as the city-state seeks to carve out a prominent role in the US$30 billion global catastrophe bond market.

Minister for Trade & Industry (Trade) Lim Hng Kiang announced this in his keynote address to open the 14th Singapore International Reinsurance Conference (SIRC) yesterday. Mr Lim, who is also Deputy Chairman of the Monetary Authority of Singapore (MAS), said the grant programme will be applicable to ILS bonds covering all forms of risks beyond just natural catastrophe.

“We are seeing a growing cluster of institutional investors and fund managers like Quantedge exploring allocation into catastrophe bonds, as they venture into niche and specialised strategies to extract better risk-adjusted returns.”

“On the supply side, we too have seen healthy interest from Asia-Pacific issuers in the development of an APAC market for catastrophe bond issuances, due to the proximity to and better understanding of the underlying risks,” he said.

Mr Lim added the MAS is currently working with key industry players to issue a CAT bond here in the near future. “This is but the first step of a longer journey as we look forward to working with the industry to further deepen the ILS eco-system here.”

Belt & Road risk consortium

As part of its alternative risk transfer strategy, the MAS also announced the formation of a Singapore-based infrastructure consortium to provide insurance solutions for risks arising from China’s One Belt One Road (OBOR) initiative.

The OBOR insurance consortium, which will be administered by China Re Singapore, will bring together Singapore-based insurers, reinsurers and brokers to provide capacity and risk management services for OBOR projects.

The consortium will pilot with two lines of business: construction and project cargo & liability.

“We have established a group of interested lead and follow markets in Singapore to offer coverage in these two lines. The markets comprise leading insurers, reinsurers and Lloyd’s syndicates operating in Singapore, and we look forward to the industry’s active participation in this bold venture,” said Mr Lim.

In recent years, Singapore has strengthened its position as a leading specialty (re)insurance hub in Asia – its share of offshore non-life as a proportion of total non-life premiums rising steadily from 60% in 2010 to almost 70% in 2016.

Singapore’s share of global Asia-Pacific originated reinsurance premiums has also risen from 3% in 2013 to approximately 10% in 2016.

 

 

Reinsurance has long way to go to forge new partnerships

Reinsurers need to explore new partnerships to face the powerful forces of digital technology, climate change and protectionism, said Mr Ulrich Wallin, CEO of Hannover Re in his industry keynote address.

“No one actor alone is capable of addressing the new normal. The insurance industry needs to develop new responses and new strategies for the new realities that are emerging globally, said Mr Wallin.

“The speed with which technology is progressing today opens up immense possibilities for our industry.”

Mr Wallin exhorted the reinsurance industry to take stock of the challenges ahead of it. “The industry needs to realise that every challenge is a threat and also an opportunity; it just depends on our focus.”

Noting that the global insurance market is currently around 20 times of the reinsurance market, he said this indicates the potential that can be exploited.

Technology adoption can speed up the whole process

The industry is adopting InsurTech and this should make the whole scheme of things including underwriting, broking and claim processing much more efficient.

He, however, cautioned that governance needs improvement so that the balance between the risks and benefits of new technological innovations is maintained.

Emerging technologies

Speaking about emerging technologies like AI and robotics, 3D engineering, geoengineering and biotechnology, Mr Wallin said they are changing the global risk landscape dramatically. He called upon the reinsurance industry to be prepared to face risks like cyber-attacks, data fraud and theft, lack of governance and above all, unemployment, due to these disruptions.

Risk based regulatory frameworks

Very often, regulatory changes dictate the relationship between reinsurers and cedents, hence the industry needs to explore developing more sophisticated and risk-based regulatory frameworks. This will help in forging new partnerships for socio-economic resilience, said Mr Wallin.

Open markets without barriers are vital

Finally, he highlighted the growing trend of protectionism in the reinsurance industry: “Efforts to close the protection gap benefit from open markets. Cooperation between actors to support open markets is important. While protectionism may be good for one single country in the short term, in the long term it is harmful to the global (re)insurance industry.”

 

 

A case of cautious optimism

L-R: Mr James Nash, Mrs Doina Palici-Chehab, Ms Jayne Plunkett, Mr Hermann Pohlchristoph and Mrs Alice Vaidyan.

At the high-level executive panel yesterday morning, five members of the industry totaling 125 years of combined experience spoke on the more difficult issues plaguing (re)insurers today, given the theme of Responsibilities and Opportunities in the New World Disorder. From geopolitical risks to lagging in innovation and narrowing profit margins, the insurance industry is currently in difficult waters as Mr Hermann Pohlchristoph, Member of the Board of Management, Munich Re, puts it.

“The industry has been a bit too traditional for too long, but there has been a recent wake-up call. We are starting to see more activity on the innovation front recently and [Munich Re] have been looking at tackling emerging risks brought along by the rise of technology,” he said.

Given the uncertain state of global politics today, especially in the controversial figure of US President Donald Trump and the rise of protectionism, geopolitical risk only exacerbates interconnected risk, which can be easily seen in the supply chain disruption risks, said Ms Jayne Plunkett, Regional President Asia at Swiss Re.

However she is not buying into the doom and gloom mindset.

“More risks means more opportunities for the industry. We need to bring more of those risks into our safety net, because our everyday job is to protect these risks.”

This mindset highlights the responsibility the industry has in helping society grow and evolve, especially in emerging markets and developing nations. Ms Alice Vaidyan, Chairman & Managing Director of GIC Re, brought up the huge protection gap that exists in her native India, and what is currently being done to close that gap.

“We do not operate as a typical public reinsurer, and have more freedom to operate as we wish,” she said. This gives them the ability to develop new products and solutions for their cedants to fit the needs of the under-protected. This innovative freedom carries over into the rest of India’s insurance industry.

“New products and innovations brought into the Indian market are unique and unparalleled,” she added. While Asia is not homogenous and each market has its own quirks, the speed at which India’s insurers innovate is emblematic of the entire region’s rapid growth.

Does the rise of Asia signal a decline of the West?

Yes and no… yes, in the sense that if you take the total world economy as 100%, if one part of the world increases in percentage, obviously the other part would decrease. Now, that is not necessarily a decline – the world economy continues to grow as it has done. And basically, there’s no country in the world, especially in the advanced economies, where we have seen an actual decline in the GDP per capita income, not even in the short term. So yes, in relative terms, and no, in absolute terms.

Panel Moderator:
Prof Hellmut Schütte, Emeritus Professor of International Management, INSEAD, and Dean Emeritus, CEIBS

Speed, scalability and simplicity – an Asian recipe?

It is this rapid growth that had Ms Doina Palici-Chehab, Interim CEO of AXA Asia, urging the industry to adapt. “We need to adapt our products to the different markets across Asia, adapt to Asian globalisation, adapt to customer needs and work with the government to allow them to grow the industry.”

She also pointed out that Chinese insurers, such as Zhong An, set an example for European and American incumbents on the importance of flexibility and agility, and that the industry has been too oldfashioned for too long.

Mr James Nash, President, International Division, Guy Carpenter, agreed with the sentiment, saying that the industry needs to learn from the speed of change in Asia, such as embedding products into technology or other non-insurance products, while keeping it simple for the consumer.

From an operational perspective, Ms Plunkett said that the movement of people into the region is necessary in order for them to truly understand the Asian markets. “It moves so fast that if you blink, it changes,” she said.

Revisiting pricing

The subject of pricing and profitability was also raised, with Mr Pohlchristoph saying that the pricing of risks over the past few years have not been correct.

“We estimate that RoEs have been about 3-4% industry-wide, which means that many players in the industry are not earning the cost of capital anymore,” he said. “With 2017 being one of the most expensive years for the industry, it will not be surprising for there to be a price correction upwards.”

Ms Vaidyan said that the reinsurance industry also needs to properly value the role of reinsurance, with some support from brokers and insurers. However, that would require reinsurers to seriously look at how they approach accounts.

“How many of us would walk away from an account if the price is not right? she asked. “I think the courage to make that decision will be more prevalent in the near future.”

The panel was chaired by Professor Helmutt Schuette of INSEAD and CEIBS.

 

 

A hive of activity – and serious discussions!

SIRC 2017 has drawn close to 1000 participants from 50 countries, who began descending upon Marina Bay Sands in droves from Tuesday morning.

The Lloyd’s coffee house threw open its doors for a lively hubbub of handshakes and hellos, serious negotiations, and those just seeking their cup of joe to see them through the long day ahead.

There were designated “meeting points’ set up by the organisers, but everywhere served as a meet-ing point, it seemed. The long hallway with booths of reinsurers, brokers and service providers vied for every passerby’s attention, and the most attention seeking wasn’t even human!

One geospatial firm dangled a drone as a prize for anyone who could guess as correctly as possible the number of vehicles destroyed in the 2015 Tianjin disaster, while Swiss Re’s IBM Watsonpowered robot won countless hearts by at times doing a little jig, or even performing the Chinese traditional Tai Chi martial art, all while answering the questions it was peppered with to the best of its AI-enabled ability.

Meanwhile, one delegate was overheard squealing at one of the virtual reality simulations – which was so real that she had to be coaxed, reassured by the comfort of a guiding hand, to “step off” the edge of a building. More squeals ensued, but we assure you that the delegate found herself safely on level ground.

We captured some of the buzz that was generated along the hallway and meeting rooms of the 14th SIRC.

 

 

Millennials: Get them on board

The insurance industry does not figure on any list of preferred employers. We speak to different stakeholders on how to win talent, especially the millennials, over.

A recent survey by SurveyMonkey in collaboration with Fortune magazine about the kind of companies one would like to work with showed that millennials, given a choice, would like to work for technology companies. No (re) insurance company figured in the choice of millennials. The insurance industry faces a tough challenge - how does it get innovative and tech-savvy people, especially the millennials, to join the industry?

Why technology companies are favourites

Most of the companies featured in the survey are leaders in their own fields and work at the cutting edge of technology, are devoted to innovation and are quick in adapting to changing consumer demands; besides of course offering innovative employee benefits. Hence, the millennials see these companies as the ones that can provide them the most satisfying career.

An under-sold industry

 

The insurance industry does a lots of social good besides being a rainy day friend yet fails to let it be known to people at large.

Ms Karine Kam, CEO of Singapore College of Insurance said: “The insurance industry is an ‘under-sold’ industry; it has many solid-gold elements that make for a successful and fulfilling long-term career for many talented individuals.”

Mr Vikramjeet Singh, Head- Human Resources, Bajaj Allianz General Insurance Company said: “There is little grasp among students about the diversified career opportunities and pathways this industry renders.”

Technology can be a game changer

Mr Shivakumar Shankar, Managing Director, Insurance, LexisNexis Risk Solutions, India, was highly optimistic about the insurance industry becoming a profession of choice. He said: “With the high adoption of new technology, this sector will attract more millennials than ever before.”

Social media a pull factor

Emphasising the importance of social media, Ms Kam said: “Insurers need to become more digitally savvy and increase the use of technology and social media to engage with millennials and raise awareness of the industry and what we can offer.”

Mr Singh said: “The industry should create a brand about the industry’s culture and vision on various platforms, including social media platforms.”

What attracts the millennials

“The key to getting more youngsters into the industry also lies in looking at what their motivations are,” said Professor Himanshu Rai of the Indian Institute of Management, Lucknow.

Ms Kam said: “What appeals to many of them about insurance is that it helps people to rebuild their lives and economies by providing coverage when insurable events occur.”

Structured talent development

Mr Singh said: “We leverage campus placement drives by conducting orientation and counselling sessions that solely aim to decipher the work profile, innovative products and digital environment that this sector embraces.”

Tie-ups for ‘insurance-ready’ millennials

Generally, millennials want to ‘hit the ground running’. Hence, it would be better to have new employees who are ‘insurance-ready’ and this can be achieved through collaboration between insurance industry and academics.

Life is too short

Millennials are looking for something that is different and attracts them by creating a meaningful environment and also pays them well; while also bringing with it the opportunity to innovate. The millennials practise what Amazon founding chairman Jeff Bezos preaches: “Life’s too short to hang out with people who aren’t resourceful.”

From one generation to the next

Some would call it destiny others would term it the call of family legacy. Mr Rohit Atul Boda, a millennial, wanted to pursue a course in music in London and chart out a career in music after his graduation. The young millennial, however, joined his illustrious father Mr Atul Boda in insurance broking in 2010.

Speaking to Asia Insurance Review at the 14th SIRC, Rohit said that his family’s of legacy of 75-years in insurance business and the human service it renders to those in distress, especially after a catastrophic event, inspired him to join the family business. (J B Boda & Company completes 75-years in 2018)

Rohit said insurance primarily teaches us to build long term relationships and to honour them. It requires utmost discipline to do good for the insuring public. Speaking about the opportunities in the insurance industry, Rohit said: “With low penetration, year-on-year double digit growth, presence of overseas reinsurers in the country and emerging risks, insurance as a career offers plenty of opportunities for millennials like me.”

Rohit also happens to be a fitness freak and has set up a state-of-the-art fitness centre in a Mumbai suburb. He said: “We ensure your health and also we insure your financial health.”

 

 

Floods - US$50 billion protection gap needs to be closed

by Vincent Eck, Regional Leader, Asia Pacific, Global Partnerships, Swiss Re

Floods are one of the most devastating natural disasters, affecting populations across the world. In Asia in August, heavy floods hit Nepal and India, causing landslides and taking the lives of at least 250 people. The economic cost were not even known at the time of writing. The tragic floods showed again that too much water literally swipes away lives and whole economies - especially if so many are not insured.

So what needs to be done to close the US$50 billion protection gap in not insured nat cat protection around the globe - of which a large part is in Asia?

We’re under water already…

In 2016, São Paulo, Houston, parts of Germany, France, Belgium, Romania, the Netherlands, the UK, Oklahoma, Maryland and Louisiana were under water. So far in 2017, Southern Thailand, India, Peru and Quebec have all been flooded. This incomplete list highlights how often floods hit.

…and it will only get worse

Climate Central has analysed the effects of the expected sea level rise across the globe. The result: by the end of the century, up to 650 million people will live below sea level or in areas affected by regular flooding.

This not only puts the lives of coastal populations at risk, but could also destroy port cities in many countries. As the “Mind the risk” study by Swiss Re shows, this would mean the loss of major economic drivers, with potentially devastating effects on entire countries. This is because the economic centres of many countries were built on floodplains. In Asia cities heavily at risk include Tokyo, Hong Kong, Bangkok. Jakarta and Mumbai. To avoid human and economic disaster in the future, we must prepare now.

Model - protect - insure - repeat!

If you want to prepare, you need to know the lay of the land. The modelling of flood events can be a key factor in this. Finding out where you might be exposed to this risk is easy with Swiss Re’s unique global flood and storm surge model. And as it’s integrated into Swiss Re CatNet®, the information you need is only a click away.

Next, you have to decide how to prepare. This raises the difficult question of where to invest in installations or processes to minimise damage. This is where the report of the Economics of Climate Adaptation Working Group comes into play. It offers a toolset that can help in making these decisions. For some measures, the trade-offs are simple. In agriculture, for example, you might replace regular plants with alternatives that produce less grain but can withstand floods. Investments in floodgates or dykes, on the other hand, must be carefully evaluated to make sure that money is invested in the most effective prevention measures.

But even the best protection can only do so much. Once land and businesses have been flooded, you also need some way of helping people back on their feet. With its modelling capacities, Event Correlation and Analysis methods, Swiss Re can help you design an insurance programme that helps with reconstruction while being affordable for all.

If we act now, we will be better equipped to prevent damage from the increasingly common and heavy floods and storms we expect to see in the future.

A more resilient society for us all

If we act now, we will be better equipped to prevent damage from the increasingly common and heavy f loods and storms we expect to see in the future. A lot is at stake, as the Swiss Re sigma estimate for 2016 shows.

Flood-related economic losses amounted to $30 billion in 2016. Closing the $50 billion global protection gap by insuring currently uninsured is one key step to make us more resilient.

If the insurance sector, the wider financial sector, industry, governments and all other stakeholders work together, we will achieve the goal to have insurance against flood to be in place for all. The benefits are clear: no disruption to economies, safe homes and growth for everybody.

Source: Artemis Flood Protection Roundtable

 

 

Globalisation will prevail!

Protectionist tendencies are rising globally and the insurance industry is not excluded. Globalisation will however prevail as emerging markets gain more prominence in the global economic pecking order.

The line connecting yesterday with today and today with tomorrow is never a straight one. There are always ups and downs, climbs and slides, as the story of every human activity, including insurance keeps unfolding.

Worries on protectionism

The global insurance industry has witnessed creeping protectionism in recent times, with Swiss Re’s latest SONAR report on emerging risks highlighting reduced markets access as one of the top six emerging trends the (re)insurance industry should have on its radar. The report said that the use of regulation to control capital flows and encourage protectionism could eventually undermine the business models of international corporations.

In BlackRock’s sixth annual global survey of 300 senior insurance executives in 2017, 71% of respondents said geopolitical risk, which encompasses worries over populism, protectionism and regional tensions, is now seen as one of the most serious macro risks the industry faces; this is up from 51% in 2016. APAC data showed an even bigger jump in citing geopolitical risk as the most serious risk, up from 52% in 2016 to 77% this year.

A major concern among global reinsurers is the growing protectionist tendencies in the developed markets. It is more worrying as these markets were the architects of liberal frameworks, which helped in globalisation of reinsurance.

The global risk landscape is undergoing rapid transformation. While on one hand the incidences of catastrophic events are increasing, on the other, the geopolitical uncertainties are also intensifying. Whether BREXIT in Britain or Make America Great Again theme in the US, how the global (re)insurance industry can brace for changes and mitigate the potential impact of these protectionist tendencies remains a question.

How can the global (re)insurance industry brace for changes and mitigate the potential impact of these protectionist tendencies?

Consequences of protectionism

Protectionist policies lead to lower insurance availability and potentially at higher prices. Insurance penetration too goes down, and consequently a potential widening of the protection gap and detrimental impact to the wider economy in the event of a catastrophe.

By acting as an insurer to primary insurance companies, reinsurers extend protection to a broad range of risks, including those otherwise uninsurable. In doing so, they support social resilience, economic growth, and development. If barriers are imposed on transfer of risks, a larger portion of catastrophic losses will have to be borne by the respective markets themselves.

Even as it seems that the world is facing a backlash against globalisation, economic openness is still high on the agenda in Asia with China’s “Belt & Road” initiative and ASEAN’s vision of regional economic integration through the AEC.

New dawn of globalisation

The markets that are relatively barrier-free stand to gain by diversification and crossborder reinsurance arrangements, which soften the impact of catastrophic events on the local insurance markets.

In the New Zealand Christchurch earthquakes of 2010-11, direct economic losses were estimated to be US$32 billion, although almost 80% of this was covered by (re)insurance. Of the two-thirds of the claims, 95% were paid out by foreign reinsurers. This corresponded to nearly 10% of New Zealand’s GDP. Had there been barriers to cross-border reinsurance, recovery would have been a long-drawn process and New Zealand would have seen a prolonged period of lower rate of growth.

As Chinese President Xi Jinping said during the World Economic Forum in Davos in January: “Pursuing protectionism is just like locking one’s self in a dark room; wind and rain might be kept outside but so are light and air.”

Even as it seems that the world is facing a backlash against globalisation, economic openness is still high on the agenda in Asia with China’s “Belt & Road” initiative and ASEAN’s vision of regional economic integration through the AEC.

Perhaps a new era of globalisation is upon us with the engines of globalisation being powered by emerging economies. And the (re)insurance industry has to be ready to seize the opportunities that the next wave of globalisation - underpinned by technology - stands to offer.

 

 

Bumper CAT season

2017 has seen its fair share of major disasters, with Hurricanes Harvey, Irma and Maria, and two earthquakes in Mexico possibly taking top spots as the costliest Nat CATs this year. Total insured market losses from the slew of events in August and September is estimated at US$95 billion, according to Swiss Re. Closer to home, we round up the most significant disasters - in terms of economic losses - that Asia has seen thus far.

The Asia-Pacific region experiences more natural disasters annually than anywhere else in the world. However, compared to recent years, RMS Analyst Simon Athawes noted the size of insured losses so far in 2017 is likely to be moderate in the region.

The most destructive earthquake of the year remains a magnitude 6.5 event in August that impacted the Sichuan-Gansu border region in China, which damaged 100,000 buildings. There have been few major tropical cyclone impacts, with Typhoon Hato and Cyclone Debbie the notable exceptions. Conditions for storms forming and persisting across the Pacific and Indian Oceans were unfavourable. Flooding remains the most damaging peril to the Asia-Pacific region, with monsoon rainfall bringing devastating floods to parts of China and South Asia during the middle of 2017.

However, despite the low expected insured losses accrued in Asia so far this year, the scale and impact of disaster events remains huge, affecting tens of millions of people, damaging hundreds of thousands of homes and businesses, and destroying vast areas of agricultural land. Those countries impacted will see long-lasting effects.

With two months of the year remaining, Mr Simon Athawes said it’s still too soon for (re)insurers across the region to feel it’s been a good 2017.

“Typhoons can form in the western North Pacific at any time of year, the Australian tropical cyclone season is about to commence, while earthquakes and localised flood events can occur without warning. The highly-active hurricane season in the North Atlantic this year is a reminder that high-loss causing events can occur after even extended periods of reduced activity.”

Source: RMS, Aon Benfield Analytics

 

 

Region lauds its very best at the 21st Asia Insurance Industry Awards

Asia’s insurance industry celebrated its very best at the 21st Asia Insurance Industry Awards gala dinner held last night, honouring 16 winners sweeping titles in 15 categories.

The Life Insurance Company of the Year award went to Muang Thai Life Assurance PCL in recognition of its customer-centric approach, while the General Insurance Company of the Year award went to Apollo Munich Health Insurance Co Ltd for its product innovations.

Willis Towers Watson took home the Broker of the Year award for its cyber tool, while Aon Benfield won the Reinsurance Broker of the Year, having demonstrated effective use of proprietary data and analytics. Lloyd’s Asia, a newcomer candidate, stunned the competition to garner the General Reinsurer of the Year award, while RGA won Life Reinsurer of the Year.

The exciting newly-introduced Digital Insurer of the Year title was shared between Cathay Life Insurance Co Ltd and Bajaj Allianz General Insurance Company for their advanced use of digital strategies. The latter also clinched the Technology Initiative of the Year Award for its game-changing telematics solution. Also winning accolades for its solutions was Metlife Asia, whose Innovation of the Year is a virtual reality service platform that provides a quantum leap for customer convenience.

Service Provider of the Year winner Medix Global was lauded for its unique service models that make quality healthcare accessible to insureds across the globe, while the Australian and New Zealand Institute of Insurance and Finance added yet another trophy to its collection of Educational Service Provider of the Year awards. Meanwhile, Allianz Ayudhya Assurance PCL won the Corporate Social Responsibility Award for its efforts in helping underprivileged children in Thailand.

For individual honours, the Lifetime Achievement Award was bestowed on industry veteran Mr Mark Tucker, with his immense achievements at AIA and Prudential during the course of his career. The Personality of the Year award went to Mr Chris Wei of Aviva, who is widely known for being a leading proponent of digital insurance. Mr Roland Teo of Eastern Health Alliance was this year’s Corporate Risk Manager of the Year.

The winners were selected from a shortlist of some 40 finalists and were judged by a panel of 23 luminaries from the industry. Congratulations to all!

Roll of Honour

  • Life Insurance Company of the Year
    Muang Thai Life Assurance PCL
  • General Insurance Company of the Year
    Apollo Munich Health Insurance Co Ltd
  • Educational Service Provider of the Year
    Australian and New Zealand Institute of Insurance and Finance
  • Innovation of the Year
    MetLife Asia
  • Service Provider of the Year
    Medix Global
  • Corporate Risk Manager of the Year
    Mr Roland Teo, Eastern Health Alliance
  • Broker of the Year
    Willis Towers Watson
  • Reinsurance Broker of the Year
    Aon Benfield
  • General Reinsurer of the Year
    Lloyd’s Asia
  • Life Reinsurer of the Year
    RGA
  • Corporate Social Responsibility Award
    Allianz Ayudhya Assurance PCL
  • Technology Initiative of the Year
    Bajaj Allianz General Insurance Company Limited
  • Digital Insurer of the Year (Joint-Winners)
    Bajaj Allianz General Insurance Company Limited
    Cathay Life Insurance Co Ltd
  • Personality of the Year
    Mr Chris Wei, Aviva
  • Lifetime Achievement Award
    Mr Mark Tucker

 

 

Digital disruption and the second-half of the chess board

Sounding a prophetic message of doom and gloom for the insurance industry with the advent and rapid progress of InsurTech, Mr Peter Hacker, Co-Founder & Partner, Distinction.Global, InsurTech opinion leader and author, gave insurers a wakeup call urging them to adapt and evolve or perish.

Technology and automation, he said, are moving at a pace that humans cannot match. “Disruption in the insurance and reinsurance industry has become the new normal. Anything that cannot be automated will be extremely valuable in the future,” he said, in a special keynote address yesterday at the SIRC. He mentioned here that creativity, intuition, emotion and ethics will be of immense value in the future.

Intangible assets and risks

Mr Hacker pointed out that, today, market capitalisation is driven by intangible assets. He said that while the conventional property and casualty risks will remain, the future will be dominated by mobility and intangible assets. “From an insurer’s point of view there are huge opportunities because as the more the risk becomes intangible, the higher will be its severity,” he added.

He said Asia is now at a stage where digitisation and online models are disrupting conventional business models. Three trends driving this revolution are the galloping growth of mobile devices, rising popularity of social media and wider acceptance of online commerce.

Asia, which is home to 60% of the global population, has 2.3 billion mobile subscribers, who form 58% of the total global subscriber base . Furthermore, it is the Asian mobile phone giants like Sony, Huawei and Samsung that have a combined 70% share of the global smart phone market.

“There is a huge opportunity for insurers here to develop covers for the intangible risks of these companies against cyber risk threats,” said Mr Hacker.

He highlighted that the ‘Want’ vs ‘Fang’ (Facebook, Amazon, Netflix and Google) race has just started where billions of people are connected to the Web and disruptions will happen in unprecedented waves. “The era of disruptive automation and digitisation is fast approaching and millions of jobs are at risk,” he said. He mentioned a recent report by the ILO which said that 56% of all salaried jobs in countries like Cambodia, Indonesia, Philippines, Thailand and Vietnam could be replaced by automation and advanced technologies like 3D printing.

Insurers will have their “Tesla” moment

Insurers and reinsurers will have their “Tesla” moment and for this, they need to adapt to the changes. “The industry will have to embrace InsurTech by working together with it and you can have your 'Tesla' moment, and I believe that we are at the beginning of a new age of insurance,” said Mr Hacker.

He called upon the industry to be at the forefront and not on the back foot by taking data driven decisions, re-skilling and being innovative. The insurance industry must focus on data analytics as well as hone skills and develop talent and leadership within the organisation. “This will require industry-wide collaboration, capital market backing and governmental support,” he said.

 

 

New insurer/reinsurer roles morphing into one

New models of reinsurers and insurers will emerge in the not too distant future, with the lines between them blurring as interconnectedness grows both within the insurance sector and outside it, said speakers at a panel discussion held at the SIRC yesterday.

Pointing out that there will be more consolidation of the roles of these players, Mr George Kesselman, founder of InsurTech Asia, said: “We will see a ‘hybrid’ period of quasi insurers/reinsurers, which will be more general in their roles, consume less value and which may take the shape of a multi-role entity.”

He said that reinsurers will move closer to the forefront of risks, and engage more at the distribution level, together with startups and new players. “Rather than wait for someone to send the risks to you, they would ask, how do you enable (covering) new types of risks?”

Another panelist, Mr Anthony Hobrow, CEO of consultancy NexAssure Group, expressed optimism that the business pie in this new environment is not shrinking, but will instead continue to grow. The trend is one of merely shifting the balance of growth from the West to the Africa and Asia, where insurance penetration is low and the industry has a less strong presence. “Risks are increasing, they are also just getting more technical,” he added.

Age of machines

A fundamental shift that the industry will need to get used to is that the focus of insurance, such as motor, will shift from human error to machine error and technology-focused people will be the ones driving change, said Mr Hobrow. For instance, in motor, insurance will shift from driver to manufacturer. Operations, processes and legal contracts will be automated, and insurance wordings will be prepared via artificial intelligence.

He noted that in tandem, the skill base that is required within an insurance organisation will shift enormously too--and not just at a junior level. ‘How many people in the boardroom really understand blockchain?” he asked, citing the challenges.

Talent

The exponential increase in data being collected means that there is a need to build talent in the Big Data domain, said Ms Natasha K Mak-Levrion, Founder and Managing Director of PPEARL Consulting, who was also a panel speaker.

She said that the (re)insurance industry will be looking out for computational thinking skills to make meaning of such vast amounts of data efficiently, with a view to shift “from insight to foresight”. The workforce will also shift from a mainly transactional nature to advisory functions, where the opportunities will be much greater.

“Providing solutions, not just products, will be the key differentiator,” she said. She added that the industry needs too to look at the needs of the millennial generation, including their need for speed and work-life balance.

Other speakers including Mr Marc Haushofer, Chairman of Singapore Reinsurers’ Association, held the view that the industry needed to diversify not just by recruiting young people, but also those who are not too close to the business of insurance.

“They should ask questions that we as insiders, would not. It’s really important that we learn to reduce the tradition of hierarchy, and bring in people who will challenge us,” he said.

Role of intermediaries and new trusted partnerships

As an insurance insider on the panel, Mr Paul Mang, Global CEO of Analytics at Aon, shared Ms Levrion’s view that advisory would rise, and that would apply to brokers too. Going forward, they would play the role of trusted advisors structuring solutions, not just making placements.

Still, this would build upon their traditional role of bringing together capital and exposure, which would still exist. He added that emerging risks are complicated and may require new partnerships to be formed among insurers.

New client expectations and mindsets

As urbanisation and development progress, Mr Mang said that the concepts of not just risks, but also volatility are changing, and so are people’s expectations of what is tolerable to them.

Margins of error are narrowing, while people also expect to live healthy and productive lives well into their 60s and 70s. The nature of interconnectedness has also led to new complexities and the need for analytics and new capabilities to address them.

Mr Kesselman cited the example of Uber, which had found it challenging to find an insurance industry player willing to offer a solution adapted to its business model until it finally found a partner in Aon. He said that the (re)insurance industry needs to change its mindset. It should not just look into selling products off-the-shelf, but should enter into partnerships and new collaborations in order to address new emerging fundamental risks.

He noted, however, that there will be an optimisation phase first in the coming years where manual processes would take time to move to digital ones, so that the efficiencies that the industry has to offer could be ‘unlocked’ as the sector makes a significant ”step change” to such an era.

The panel discussion was moderated by Mr Peter Hacker.

The three-day 14th SIRC ended yesterday. With the SIRC turned into an annual event from this year and next taking place from 30 October - 1 November 2018, the East Asian Insurance Congress will be held in Manila from 6–9 May 2018 instead of its customary calendar slot late in the year.

 

 

SIRC in a nutshell

Already miss the buzz and vibe of SIRC? Missed out on the biggest reinsurance event of the year? Check out the highlights of #14SIRC and we’ll see you again soon.

 

Meet The Team

Editor-in-Chief:
Sivam Subramaniam
General Manager Business Development:
Sheela Suppiah-Raj
Editorial team:
Ridwan Abbas, Dawn Sit, Zaki Ahmad, Chia Wan Fen, Jimmy John, Anoop Khanna
Business Development Team:
Koh Earn Chor, Junaid Farid Khan
Design & Layout:
Angeline Tsen, Jerick Yu