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May 2024

When insurance pricing and reality clash

Source: Asia Insurance Review | Nov 2023

Many people in the insurance industry in Asia would have been unsurprised when the World Bank came out recently and said that the region’s economic prospects were presently as bad as they had been in the past 50 years. Very bad news – but the signs have not been hard to spot since the pandemic came under control.
 
While the bank pointed specifically at China’s slowdown post-pandemic and the property market woes – with growth revised down to 4.4% next year from 4.8% - and developing economies in east Asia revised down to 4.5% from 4.8% - such a gloomy outlook can only weigh on markets and consumers alike.
 
Admittedly, India and other south Asian nations are forecast to show strong growth of 5.8% up from 5.6%, but the region as a whole seems to have lost its momentum as ‘the engine of growth’ for the world. Not so long ago most major insurance and reinsurance companies were pinning their hopes on Asia to drive new business since it was forecast to grow for many years to come.
 
The World Bank revelations come at a time when insurers and reinsurers are beginning their annual discussions over renewals for 2024. Readers can see what leading reinsurers and brokers were saying at Les Rendez-vous de Septembre in Monte Carlo in the pages of this issue of Asia Insurance Review.
 
The reality is that insurance penetration is still very low across large tracts of Asia – in part because of the issue of affordability and in part because of lack of awareness – and this varies enormously country to country. In any event, the worrisome economic backdrop in Asia identified by the World Bank is not the ideal environment in which to solve the region’s problems by closing the insurance protection gap.
 
To add yet more colour to the picture, it seems increasingly likely that interest rates will remain at their present (high) levels for at least another year and probably longer – and inflation is proving to be stubbornly slow in coming back down, while wages are struggling to keep up.
 
Of course, all of these predictors have one set of implications for insurance and reinsurance companies – but quite another set of implications for individuals and SMEs who are the ones meant to be buying insurance.
 
Many governments in the region have identified financial literacy – and insurance literacy – as a core essential in making the purchase of insurance more ubiquitous. But these efforts, if they are to achieve their goals, will ultimately be unsuccessful unless normal people and normal businesses can afford to buy protection at what they consider to be a reasonable price. So once again, we come back to pricing.
 
Smart people in Asia have been working on such problems for years now – hence the increase in developments such as microinsurance (and microtakaful), embedded insurance as well as InsurTechs that promise that purchasing cover is ‘just a click away’.
 
With all the negatives stacking up – it might be time to focus on the positives. The demand is growing – but only for affordable cover. A 
 
Paul McNamara
Editorial director
Asia Insurance Review
 
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