Demographic changes, evolving market dynamics and climate change are some of the challenges Asia is facing as it stands at a crossroad. And the way forward is to embrace these developments, say industry experts at the 27th East Asian Insurance Congress (EAIC), and to pit change against change.
In recent times, change has presented more challenges for the insurance system around the world. However, change can also create new hope, new markets, and new growth. As such, the industry should not be afraid of change, said Dr Jennifer Li Ling Wang, Vice-Chair of the Financial Supervisory Commission in Taiwan as she officiated the EAIC opening ceremony.
Similarly in her keynote address, Lloyd’s Chief Executive Inga Beale said insurers have an opportunity to create Asia’s “golden age of insurance” by helping its economies and businesses become more resilient to shocks as the world’s economic gravity shifts towards this region. As economic growth creates more assets which require protection, the industry can move to the next level by successfully demonstrating the value of insurance to businesses, governments and society at large.
Potential areas of development
One area where insurance plays a crucial role is in mitigating the impact of business interruption, which was well demonstrated during the Japanese tsunami and Thai floods in 2011. “Business interruption is perhaps a particularly Asian risk given the high level of natural catastrophe events and globally significant manufacturing here,” said Ms Beale.
She added the general perception that such products are meant for the big companies is a “huge mistake”, given how globally connected SMEs have become. Hence, there is a big opportunity for insurers to educate businesses on their supply chain risks.
Another potential area to capitalise on is the under-penetration of natural catastrophe covers in Asia. A recent report by the Asian Development Bank showed that only 7.6% of Asia’s economic losses were insured last year, compared with 67% in the US. And with low insurance penetration rates, the burden to cover the cost of catastrophes falls on governments and taxpayers, she said.
“This is where we step in and take the risks of natural catastrophes off the balance sheets of businesses and the taxpayers. It is an area where insurers can add very clear value to society.”
Climate change effect on CATs not as expected
Turning to climate change and its impact on the industry, it seemed that the effect of global warming and climate change on the higher frequency of natural disasters and greater severity in losses was perhaps not as pronounced as theorised, said Dr Stephen Mildenhall, Global CEO of Analytics, Aon Benfield.
He said there has not been an increase in the frequency of “most severe cyclone, typhoon or hurricane events on a global basis”. Any climate change effects, he said, would occur gradually over many decades.
Sompo Japan Nipponkoa’s General Manager of Reinsurance Shiho Koshikawa’s comments struck a similar chord as she said there had not been a particular trend change in the frequency of typhoons, nor was there a clear observation of any changes in the strength of typhoons, measured by wind speeds. For other perils, while there was an increase in snow, hail and heavy rain in Japan, she said these events were not usually extreme and were smaller compared to major typhoons.
Mr Mike Mitchell, Global Head of Structured Reinsurance Solutions and Head of Property & Specialty Product Hub in Asia, Swiss Re, who chaired the session candidly summed up Dr Mildenhall’s presentation: “Urbanisation, insurance penetration and wealth seem to be driving the economic and insurance losses to GDP – so actually, in contrast to many of the discussions that we’ve had in the last several years, climate change isn’t really the villain; it’s people that are the problem, or to put it more positively, potential clients.”
Constantly strive for better data
Aside from the impact of climate change, panellists also discussed at length the importance of data quality in underwriting. Mr Philippe Domart, CUO for Asia Pacific at Partner Re, noted that the industry now has a lot more capital and is more sophisticated at assessing perils. And while there has been “collective data improvement”, the quest for better data quality is a “long and never-ending journey”.
Dr Sibylle Steimen, Allianz Re’s Global Head of Catastrophe Risk Management, cautioned not to rely too much on models as those too need constant improvements and updates. Quality data on the other hand, is more crucial, as without data, insurers would be making “blind decisions”.
Marry data analysis with experience
The underwriting mix should also take note to include the soft factor of experience. With such fast advancement in technology, Dr Pedro P Benedicto Jr, President of Republic Surety and Insurance, highlighted the challenge of translating data into something comprehensible and of use. “We need to marry the ability to read the analysis with experience; only then can we come up with better solutions.”
Concurring, Ms Duanden Choenchitsiri, Director & Chairman of Property Committee, Thai General Insurance Association, said: “Modelling is modelling, we still need to consider data quality with underwriting experience, knowledge and awareness.”
Call to carefully think on industry’s next steps
Notwithstanding the strong growth that Asia has experienced, Mr John Tan, Group Chief Executive of ACR Capital Holding called on the industry to carefully contemplate “what its next steps should be”.
“If we look back in history, we always think that the developed countries will always have excess capital to fund the developing world. But, interestingly, over time the emerging and developing countries are becoming creditors, while the developed countries are becoming debtors,” he said, as he outlined the challenges and opportunities faced by insurers across the region.
“Yet, in terms of expertise, processes, systems and standards, we continue to follow the developed western world. Where does that lead us? We should think carefully before we just follow.”
One-size-fits-all framework not panacea
On regulation, Mr Tan questioned whether having a uniform regulatory framework was a right and fair approach in an industry characterised by markets with largely different levels of maturity. Regulators should consider carefully to what extent following Solvency II was beneficial to their domestic industries.
“In boxing, you can’t have a heavyweight fighting with a flyweight. If we look at rules, at regulations, it is important to recognise our own capability, our own situation, and also look at what the systemic issues are,” he said.
Fundamentals first
Mr Tan also struck a cautious tone, warning that local insurers should resist the temptation of going global too quickly; instead, they should focus on ensuring that their local operations are supported by strong fundamentals before venturing beyond their domestic borders.
There are still significant opportunities in Asia to tap into, if the right approach is taken. Technology advances, such as e-commerce and cloud computing, could provide significant opportunities for insurers to reduce transactional costs and attract new premiums, he said.
The 27th East Asian Insurance Congress was held in Taipei, and was attended by about 1,500 delegates.