Big Data analytics and the inherent diversity of insurance covers point towards greater customisation rather than streamlining of insurance products, said Mr Peter Allen, Global Head of Insurance at Grant Thornton.
Speaking to Asia Insurance Review, Mr Allen commented on the push towards product simplification which he attributes to main two factors – e-commerce and regulators.
“The online factor makes insurance cheaper and more accessible, and it responds very well to product simplification. For the regulator factor, there is a general view amongst regulators that over-complication of financial products had contributed to the Global Financial Crisis.”
Insurance will likely remain complicated
However, he added insurance products will not necessarily turn into a more simplified proposition as some would imagine. “There is a certain non-homogeneity of insurance so it’s not always easy to do it even if there is pressure towards that. Also Big Data and analytics makes it more granular and customers will not want a one-size-fits-all solution.
“So my guess is that in 10 years’ time, insurance will be just as complicated as it is today,” said Mr Allen.
Challenges
He said insurers in Asia faced three strategic dilemmas going forward.
Scale
The first relates to having sufficient scale, which he believes not many general insurers in Asia can lay claim to.
“Particularly in property & casualty, many are too small for safety in more jurisdictions than not.”
He added acquisitions still seemed to make the most sense for insurers seeking to improve capital efficiency through achieving scale, even though a recent survey showed flagging confidence amongst insurers in the ability for M&A deals to create significant cost savings.
“If I were to run a medium sized insurance company in this region, I would be tempted to buy. I may not necessarily get the cost benefit, but I can double my market share and I probably won’t lose much margins. Whereas if I were to double my share through organic growth by taking business from others, they will drop the unprofitable bits of business on my lap and my margins will suffer,” he said.
“Ultimately the big driver of profitability in a P&C business is not its expense ratio but claims ratio.”
Legacies and integration
The next dilemma for insurers, especially for MNCs in Asia, relates to a lack of integration in their businesses which leads to questions on cost efficiency through economies of scale.
“Most of them have built through acquisition and have generally not integrated their business at the back end of it. And I think that’s a big challenge for the global insurers having to operate on different platforms in different jurisdictions.”
He said the failure to do so might be the result of succumbing to short-term cost pressures.
“To fully integrate a legacy insurer on a new system is a very expensive process, so short-to-medium term cost pressures may be a reason why they haven’t done it.”
Regulations
Finally, the inconsistency of regulations in various jurisdictions in Asia still poses somewhat of a challenge for insurers. While there is general convergence on broad aspects such as capitalisation and risk management, there are still big differences at the conduct end.
“Regulation is a bit of a challenge in the region at the customer end, all the regulatory regimes are nationally based and they have got different agendas,” he said.
Mr Allen is also the CEO of Grant Thornton in Singapore, which launched its operations last year offering a range of assurance, tax and advisory services.