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Jan 2021

Digitisation, distribution, costs and regulation

Source: Asia Insurance Review | Dec 2020

Alex King

From IFRS17 to M&A, next year is sure to be a busy one on all fronts, says Actuaries OnTap’s Mr Alex King.

The global impacts of COVID-19 will further strengthen the demand for, and awareness of, protection products due to an increased realisation of the risk and impacts of falling sick. Agents should be able to use this positively in their discussions with customers to promote the valuable coverage provided by protection products.
Future business mix
Insurers who have a strong protection focus will benefit most from this. Especially those who seek genuinely to innovate their propositions both in terms of coverage but also including added-value benefits that help some customers relate more to the benefit provided. For instance, I believe the most positive results will be seen by those who promote and design coverages which are individually tailored to the needs of the customer, perhaps in the form of a replacement of their own outgoings should they become sick or die.
Low interest rates will continue which will make it difficult to offer affordable savings guarantees. The management of par funds will continue to be challenging and this may result in cuts in bonus levels.
The demand and availability of traditional high-net-worth products may reduce with some players likely to exit this market.
Digitisation – ease of doing business
The demands of the modern customer will drive insurers to continue to invest in digitisation of new business processes, including underwriting. 
Having been through COVID-19, distributors will require more automation in the sales process to enable the seamless submission of new business.
An increased range of automated top-ups for existing customers will be made available by many insurers, many utilising the data and information they have on their customers to offer reduced underwriting and individually tailored coverage.
Distribution – fewer tied agents
There will be a continued trend of distributors moving away from being tied to a single insurer and switching to become a financial adviser or seeking multi-tied agency agreements where they can sell products from a panel of insurers.
High awareness of cost
One-off spending, particularly if it is considered discretionary will continue to be heavily scrutinised with some non-essential projects deferred or cancelled.
The larger savings however are likely to come from reviews of ongoing expenses where there is potential to consider alternatives. This will naturally include reviews of office space and considerations for working from home programmes and even offshoring and/or outsourcing of certain routine activities. The efficiency of reinsurance spending is also likely to be reviewed with the biggest impact on structures which involve reviewable reinsurance rates, in part due to their treatment under IFRS17.
Resource shortages will continue as many companies seek to attract similar skilled talent. 
Retention of key employees will remain challenging due to remote working and the associated challenges for employee engagement and unified culture across large businesses.
Sub scale insurers across the region will continue to review their ongoing viability with the likelihood of further acquisitions or mergers to achieve economies of scale. With large amounts of market liquidity and low interest rates, this will likely gather further pace in 2021.
It is likely that IFRS17 will be further delayed given the challenges from COVID-19. Companies in emerging markets will face the biggest challenges in preparing for IFRS17, especially the local companies without regional or head office support.
As economic capital becomes more embedded in business decisions across the region, the potential to use internal/external financial reinsurance or internal retrocession to jurisdictions with lower statutory capital requirements will become more prevalent. A 
Mr Alex King is CEO and founder of Actuaries OnTap.

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