We need to learn from each other

On behalf of the Brunei insurance and takaful industry and as the chief delegate from Bandar Seri Begawan I am very grateful to express my gratitude to the EAIC to give me the opportunity delivering a few words and thoughts about our industry and market and the importance being part of EAIC especially during this current challenging times.

First of all, I would like to thank our previous chairman and chief delegate, Mr Haji Osman Jair, who led our industry and represented us in various EAIC events during the last seven years.

It’s the first time for me participating in EAIC and regretfully and due to COVID-19 not in a physical way as it is used to be. I would love to meet all my colleagues in the East Asia region in person.

COVID-19 has changed our lives enormously and brought us unexpected and unforeseen new challenges. Therefore, and especially in these times, it is of immense value to be part of a network such as EAIC to support each other, to share experiences and to get inspirations how to manage these turbulent times.

As with all countries all over the world, Brunei Darussalam has also been affected. With the great leadership of His Majesty Sultan Haji Hassanal Bolkiah Mu’izzaddin Waddaulah Ibni Al-Marhum Sultan Haji Omar ‘Ali Saifuddien Sa’adul Khairi Waddien, Sultan and Yang Di-Pertuan of Brunei Darussalam and our government we managed so far to get this pandemic under control and could return relatively fast and resume our businesses.

But business has been changed and is different nowadays. The economy slowed down, unemployment rose, lots of small and medium enterprises closed or cut down their activities, foreign workers can’t enter the country and Bruneians are not allowed to travel. Insurance agents and brokers could not visit their customers and provide their services as they did before. All these circumstances affected our insurance and takaful industry and have an impact on our revenue.

Challenges like these offer new opportunities to our industry. Digitalisation is the key and has been faster implemented or practiced than before the pandemic. Furthermore, we notice an increase in young agents signing up and looking for opportunities and developments within our industry.

It is important to be fit for the future and to create more awareness about insurance in our market. Insurance has to be simple, understandable and affordable especially for those whose financial capabilities are limited. Moreover, we as an industry have to support initiatives to make our streets safer as still a high number of car accidents occur during the year.

From such initiatives and challenges we need to learn from each other. Thanks to EAIC, a number of ideas and experiences have already been exchanged with our colleagues from other countries within our region. The platform and opportunities created by EAIC since 1962 give us an inexhaustible possibility to develop and to progress our industry in our countries.

For this I would like to thank all the members of EAIC for their cooperation, willingness to help and sharing knowledge for situations they already went through in previous years.

“The strength of the team is each individual member. The strength of each member is the team,” said Phil Jackson. I hope one day I can meet all the members of EAIC in person, make new friends and learn about new opportunities provided by EAIC.

I wish you all a safe and healthy journey during these difficult times, having the right touches in your decisions and hope to see you all soon in the next EAIC.

Industry projected to decline further for the full year

While it saddened us that the EAIC 2020 has had to be postponed due to the global COVID-19 pandemic, I believe – as befitting the theme of EAIC 2020, A Brave New Decade for Insurance – we will persevere with courage and hope despite the challenging times ahead.

The general insurance industry in Malaysia has been recording negative growth since 2019. The first half of 2019 recorded a drop of 1.4%, followed by a 0.8% dip for the full year of 2019. Meanwhile, for the first half of 2020, the industry registered its steepest half year drop as it bore the full brunt of the COVID-19 pandemic. Gross direct premiums declined 3.6% to MYR8.6bn for January to June 2020 compared to the same period last year.

Motor remained the dominant insurance class and was down significantly by 7.4% at MYR3.87bn largely attributable to the more than 40% decrease in total vehicle sales for the first half year 2020. Personal accident insurance recorded the largest fall of 13.4% to MYR522m while marine, aviation and transit insurance dipped 0.7% to MYR800m due to shrinkages of 9.0% and 8.7% in cargo and offshore oil-related classes respectively. Fire insurance grew 2.2% to MYR1.76bn while medical and health insurance notched up 3.0% to MYR586m.

Amidst the crisis, PIAM member companies proactively ramped up measures to assist policyholders. In response to the Malaysian government’s call for assistance via the Ministry of Health, PIAM contributed MYR2m to the insurance and takaful industry’s MYR8m COVID-19 Test Fund.

This was part of the industry’s effort to help affected Malaysians cope with the immediate health effects of the virus and enabled more Malaysians to undergo the test to help contain community outbreak. In addition some of our member companies offered extra coverage for COVID-19 to their customers with no increase in premiums while others waived certain exclusions on medical policies where the pandemic was concerned.

Some insurers were also supportive to cancel travel insurance policies with full refund of premiums. General insurers are reviewing the financial impact faced by consumers making the necessary adjustments on a case by case basis and exploring options to ensure insurance protection continues to be available to them under these trying circumstances.

Meanwhile, the industry continues to be burdened by the high amount of motor claims incurred. In 2019 a total of MYR5.48bn were paid out in motor claims. This year, despite the significant reduction in traffic movements nationwide during the movement control order and its extended duration as announced by the Malaysian government, the total motor claims paid out by insurers remained high at MYR2.4bn for the first half of 2020.

A major factor was the high accident and fatalities recorded nationwide. Based on statistics published by the Ministry of Transport, a total of 567,516 accidents were recorded in 2019. The number of accidents went up by 16% over a five-year period from 2015.

A complete mind-set change is required to transform the driving habits of Malaysian motorists. High risk drivers with their dangerous driving behaviour affect public safety in the same way as drink-drive motorists. Their risky and irresponsible driving behaviour should be recognised with higher insurance premiums.

Good and safe drivers should not be subsidising the bad drivers. Given the urgency, PIAM will intensify its collaborative efforts with the Ministry of Transport and all stakeholders to reduce road accidents in the country. The industry eagerly awaits the full liberalisation of the motor insurance tariff by Bank Negara Malaysia which will pave the way for a risk-based pricing model for fairer motor insurance premiums.

Looking ahead the business outlook will continue to be extremely challenging given the uncertainties created by the COVID-19 pandemic. The global economy is witnessing some of the biggest disruptions ever seen and financial pressures on businesses and jobs will remain high. PIAM expects the industry to decline further for the full year with the road to recovery unfortunately a long and arduous one ahead.

I wish all of you well and keep safe while we ride out this global pandemic. Hope to see you all in person in 2021.

COVID-19 update – Jakarta, Macau and Singapore

Jakarta has a total number of 42,041 COVID-19 cases as of 2 September with 1231 fatalities and 31,741 recoveries to date. The city saw an uptick in cases since early August and reported four-digit daily rises in the number of COVID-19 cases that month as significant community transmission of the virus is being observed.

Jakarta is said to be the epicentre of the COVID-19 outbreak in Indonesia and has been coping with the pandemic by enforcing large-scale social restrictions which have been now extended till 10 September.

Under these restrictions, individuals are only permitted to leave their homes for essential purposes and businesses are required to operate at a reduced capacity as well as implement work-from-home measures where possible. Wearing face masks in public is also mandatory.

Travel measures are also currently in effect in Jakarta and the rest of Indonesia. These measures include the prohibition of all entry and transit by foreign nationals into or throughout the country.

Macau has a total number of 46 cases as of 3 September and all cases have recovered. The territory has not reported any new COVID-19 case since 26 June.

There is no COVID-19 curfew in place but the territory is enforcing strict border measures to curb local transmission of the virus. NonMacau residents who have been to an overseas territory in the past 14 days will be denied entry to the territory. Bus and ferry services between Macau and Hong Kong have also been suspended until further notice.

Singapore has a total number of 56,860 cases as of 3 September with 27 fatalities and 55,891 recoveries to date. The country experienced a peak in cases between end-March and early June when it reported surging imported and community cases. During this peak period, Singapore saw the most cases in Southeast Asia with infection clusters in dormitories for foreign workers.

In the last two months, the country has flattened its curve of infections and reported below 200 cases.

To curb the spread of COVID-19, the government had enforced a period of strict social distancing measures called ‘circuit breaker’ from 7 April till 1 June whereby most workplaces were closed and dining-in at eateries was not allowed. All bars, cinemas and entertainment outlets were closed as well. Mask-wearing outside of one’s house also became mandatory.

In June, Singapore entered its first two phases of reopening –permitting dining-in, allowing households to receive up to five visitors and some facilities to reopen.

While short-term visitors are still not allowed to enter the country and residents are advised to defer all travel abroad, Singapore’s borders are now reopening gradually to enable safe travel in limited numbers.

*Data has been sourced from the Johns Hopkins Coronavirus Resource Center as well as the World Health Organization.

Keeping an eye on the weather

Climate change is complicating the global risk landscape. The effects of global warming are evident in many ways, and extreme weather more frequent and severe.

Higher average temperatures, longer and more frequent heatwaves, rising sea levels, a major cause of extreme flooding, and more severe rainfall are wreaking havoc across the globe. Climate change is also influencing secondary perils so much so that they can scant be considered “secondary” any longer. Elsewhere, higher average temperatures and unprecedented dryness made this past Australian bushfire season the most extreme on record, according to Swiss Re Institute’s sigma publication.

There were 317 disaster events in 2019. Of these, 107, or a third, happened in the Asia Pacific region. The Australian bushfires, flash floods across Southeast Asia, and Typhoon Lekima in China were front and centre in our living rooms and on our news feeds. Still, they did not cause the most damage. When they made landfall in densely populated Japan, Typhoons Hagibis and Faxai left a destructive trail in their wake and resulted in at least USD15 billion in insured losses, according to Swiss Re figures.

Beginning in September 2019 and lasting half a year, the recent Australian bushfire season scorched 16m hectares of area and resulted in US $1.5bn insured losses so far, according to the Insurance Council of Australia.

But for every insured dollar lost, there is at least another $2 that is not covered by insurance. Of the $70bn in economic losses last year, only $20.8bn was insured, meaning about $50bn that could have gone to improved infrastructure, and getting people’s and businesses back on their feet quickly was lost because governments or individuals willingly chose to bypass an insurance solution.

Insuring our Future

Unless there is a significant change in how insurance is viewed as a risk transfer mechanism, the protection gap will continue to widen. Asia’s growth, industrialization and urban migration patterns will see to that.

To keep up with the dynamic climate risks, some of the things insurers can do are to continuously reassess their underwriting processes, incorporate latest scientific findings and strengthen their capacity to deal with natural catastrophes. Working with insurers, end clients and third parties need to find ways to increase societies’ resilience to natural catastrophes. This in turn increases the availability of insurance cover and helps to reduce the cost. Bearing this mitigation in mind, to close the protection gap, we need to keep reminding everyone that insurance is really one of the most reliable, affordable and efficient ways to protect yourself against the risks of climate change.

But insurers also need to innovate. They need to make their products easier to understand and access. A parametric solution – claims that are triggered on pre-agreed conditions – is one way to get more people insured against climate risk and NatCATs. Everyone needs a quick and painless solution to claim especially when getting back to normality quickly is so very important.

The longer the industry leaves climate change unmitigated, natural catastrophes will reach an irreversible tipping point where insurance cover will become unaffordable to many or even worse, no longer available. This cannot be allowed to happen.

COVID-19 has made it an even more challenging year - one that puts everyone’s resilience under greater strain. According to the UN Trade and Development Agency, this outbreak could cost the global economy as much as $2tn. What happens if there is a major earthquake, typhoon, flood or fire in your country at the same time we’re still dealing with COVID-19?

We knew even before 2020 began that we would have to contend with climate risk and its knock-on effects on natural disasters. To deal with two major unknowns like COVID-19 and NatCATs would be an incredibly challenging situation for those impacted. Maybe this was the wake-up call we needed. Maybe seeing rivers run clear, animals coming into urban settings and smog free skies will be something that inspires more of us. There is never a better time than the present to deal with it.

Insurance markets will recover in 2021

Allianz has predicted a U-shaped recovery for the world economy. It expects premium growth will rebound in 2021 to a net positive of 5.6% and total premium income should return to the pre-crisis level. The losses against the trend, however, may never be recouped: although long-term growth until 2030 may reach a growth of 4.4% (life: 4.4%, P&C: 4.5%), this will be slightly below previous projections.

The global insurance industry entered 2020 in good shape: In 2019, premiums increased by 4.4%, the strongest growth in four years. The increase was driven by the life segment where growth sharply increased over 2018 to 4.4%, as China overcame its temporary, regulatory-induced setback and mature markets came finally to grips with low interest rates. P&C insurance clocked almost the same rate of growth (4.3%), down from 5.4% in 2018. Thus, for the first time since 2015, life insurance outgrew the P&C segment, albeit by a very thin margin. Global premium income totalled EUR3.9tn in 2019 (life: EUR2.4tn, P&C: EUR1.51tnn).

Post COVID-19, Allianz sees three trends, already in place before, that will gather steam in the coming years:

  • Digitalisation of the insurance business model
  • The pivot to Asia
  • The growing significance of ESG- factors

While Asian players lead in technology, European peers are ahead with ESG. But dominance of the global insurance industry will be decided in Asia with Asian households emerge as the consumer of last resort, driving global insurance demand.

The impact of ESG

The coronavirus crisis showed the world that there is a great need for more resilience. Increasingly, ESG will be seen not only as an indispensable tool to screen long-term risks to improve investment returns but also as an insurance business-enabler. As more and more companies implement ESG strategies, the demand for accompanying products and services is set to rise rapidly. A new era of ‘impact underwriting’ emerges.

The report added that ESG factors to be considered in impact underwriting include the attitude and behaviour:

  • on environmental issues such as resource depletion, climate change, waste and pollution
  • regarding people, workers and local communities, including health and safety issues
  • referring to corporate policies and governance, including tax strategy, corruption, structure and remuneration.

This means that all potentially ESGcritical business transactions have to be screened and ESG risks or reputational impacts have to be assessed. Furthermore, underwriters need to be trained for engaging in an ESG risk dialogue with clients with the aim of finding solutions that improve the understanding of the risk on both sides and result in adequate risk mitigation and management.

The growing role of ESG factors in risk assessments is also starting to feature in insurers’ regulatory regimes. The quantification of ESG impacts to insurance companies has been demanded by the European Insurance and Occupational Pensions Authority and Prudential Regulation Authority in the UK and need to be included and reported within the regular Solvency II stress-testing exercises.

To stay competitive in the market, insurance players must not only adapt to current and future regulations, but also satisfy investors’ increasing demand for sustainable products, the report said.

Most global insurance markets will recover in 2021 and global growth over the next decade should settle down at 4.4%, against 8.1% in Asia (ex-Japan). The region will contribute more than 50% or EUR1.28tn to global premium growth until 2030, according to the latest Allianz Global Insurance Report 2020.

This is after COVID-19 froze the world economy. In insurance, global premium income is expected to shrink by 3.8% in 2020, with life insurance probably hit more than P&C business with negative growth rates of -4.4% and -2.9%, respectively. Thus, the impact of the pandemic is going to be three times stronger than that of the global financial crisis, when global premium income decreased by 1.0%.