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Oct 2024

This, that and the other

Source: Asia Insurance Review | Jul 2022

How different the world looks going into the second half of the year compared to the first.
 
Back in January, the insurance sector was grappling with the overspill from COVID-19, net zero and Nat CAT and the relentless march towards digitalisation – with all that implies for cyber risk.
 
By the opening days of July, the focus had shifted to rampant inflation, stagflation, an impending food crisis, rising interest rates – and the unwelcome return of realpolitik.
 
Russia president Vladimir Putin’s invasion of Ukraine has turned everything on its head – and the insurance sector in Asia Pacific is exposed to the worst of the fallout across a wide range of business lines.
 
Rising prices could leave many potential retail customers in ‘Global South’ countries unwilling or unable to buy policies for the basics of life, health and other personal lines. Having to choose between paying insurance premiums or paying for new school shoes for the kids is hardly a choice at all.
 
Simple arithmetic would suggest that APAC P&C insurers faced with rising wage bills, rental costs, utilities bills, compliance costs and the rest will come under pressure from their shareholders to pass these additional costs on to customers in the form of increased premiums.
 
Doubtless these insurers will have some cost savings from increased digitalisation – although these may represent increased costs themselves in the short term – reduction of staff numbers and the curtailment of staff travel because of the ubiquity of online meetings.
 
But the overall picture is one that would seem to favour insurers that are very cost-focused and cautious – not those that will develop and launch speculative products in the hope of reducing the protection gap. Indeed, talk of closing the protection gap may well take a back seat to the imperative of staying afloat and appeasing dividend-centric shareholders.
 
Wrestling for space in the same back seat are likely to be other formerly emerging issues such and ESG and D&I. It would be encouraging to think that these issues will not be forgotten completely and that they will remain as important as they were before the war – but only time will tell. Insurers in Asia Pacific will be under close scrutiny in this regard.
 
China, for some time the engine of growth for the region, is still manoeuvring its way through COVID and looks set to keep the nation sealed off from the rest of the world for the next 12 months at least. It is looking at sharply reduced growth rates that will have ripple effects on the rest of the region.
 
Retail sales in China were down 11% in April, manufacturing shrank for the third consecutive month in May and the property sector is still a long way from being stabilised.
 
Vaccine hesitancy, particularly amongst the elderly, is posing a particular challenge in China that has been addressed by the introduction of free insurance for the over-60s that will pay out up to $75,000 if the vaccination causes any health issues for the recipient. At the start of May, less than two-thirds of Chinese citizens over the age of 60 had had a booster shot of the vaccine.
 
It looks like being a messy second half of the year. Sit down and buckle up.
 
Paul McNamara
Editorial director
Asia Insurance Review
 
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