Growth prospects for insurance in six major ASEAN markets are supported by strong socio-economic fundamentals, but the pace and quality of growth will vary by geography, says Moody's Investors Service. The different insurance markets are adopting policies and new ways to overcome growth bottlenecks.
The markets include Singapore, Thailand, Malaysia, Indonesia, Vietnam and the Philippines.
"The strong fundamentals include urbanisation, a growing middle class, low insurance penetration, and the lack of a sufficiently funded welfare system," said Mr Frank Yuen, a Moody's Assistant Vice President and Analyst in a report released yesterday by Moody's that is entitled, "Insurers -- ASEAN: Growth comes through new policies and innovations".
Mr Yuen added, "However, the pace and quality of such growth will vary to reflect differences in market maturity, financial depth, demographics and policies, and the insurance industry in these countries are finding different ways to overcome common growth bottlenecks."
The bottlenecks include difficulties in expanding and enhancing distribution capabilities, low protection content in mainstream products, shallow bond markets that limit investment options, and an increasing need to improve the capacity of industries to withstand shocks and support growth through tightening risk-based capital (RBC) regimes.
ASEAN governments are also aware of the widening protection gaps in the region, in particular among underserved segments, and have addressed these concerns through policies. The report notes that economic incentives for insurance coverage are emerging throughout the region, particularly in medical and retirement coverage.
The markets examined provide some health coverage, but their ability to sustain such coverage varies, leading to opportunities for commercial insurers to fill gaps. In that regard, Thailand and Malaysia have witnessed strong premium growth for critical illness and medical products, while Singapore's aging working population supports the steady growth in retirement annuity policies.
Similarly, economic developments in the region will continue to support the growth of non-life premiums. Rising infrastructure investment in Indonesia supports demand for property and fire insurance, while the Philippines' high exposure to natural disasters has fueled its demand for catastrophic loss coverage. In Vietnam, the continued economic development and increasing risk management awareness would support premium growth.
Throughout ASEAN, insurance distribution is dominated by agencies and brokers, which are uneven in quality, coverage and geographical reach. To address the limited pools of qualified agents, for example, Singapore has been increasingly relying on financial advisers as an important channel, while Malaysia has launched tools, such as the balanced scorecard, to increase productivity for agents and bank staff selling insurance products.
In addition, there has also been a growing number of regional bank partnerships to expand client reach. Nonetheless, Moody's expects that it will still take time and investment for insurers to strengthen the distribution capabilities of their banking partners to offer higher value products.
Giving an outline of developments in the insurance industry in each of the six markets, the report notes:
Singapore has been deepening its role as an insurance hub for the region. Aging demographics will support demands for retirement and critical illness products. The regulator has been proactively advancing its capital regime and promoting insurtech growth.
Thailand has been rolling out policies to stimulate private health insurance and foreign participation. The growth of bancassurance will also enhance insurance penetration. Advances in its capital regime will add to the industry's resilience.
Malaysia's insurance penetration will be supported by government initiatives aimed at broadening coverage to low-income groups. The Perlindungan Tenang program launched by Bank Negara Malaysia (BNM) will offer simple and affordable insurance.
Indonesia's insurance industry shows increasing domestic participation, growing bancassurance tie-ups and an increase in the government efforts to develop local insurance capacity. The country's pipeline of infrastructure projects and young demographics are key growth drivers.
Vietnam's insurance growth prospects will be supported by the country’s young demographics, deepening financial market development and the increasing use of bancassurance and digitalization.
The Philippines' insurance development will be underpinned by the country’s high catastrophic exposure, higher capital and reserving requirement and industry consolidation. The country’s strong economic growth will also support insurance demands.