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EAIC: Brainstorming changes

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Source: Asia Insurance Review | Dec 2014

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.
By Dawn Sit
 
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.
Clarity, courage and humanity in facing ageing challenge 
 
In a discussion on tackling the issue of an increasingly ageing population, Mr Mark Saunders, AIA’s Group Chief of Strategy and Corporate Development Officer, summed it up by calling for the industry to exhibit clarity, courage and humanity in their approaches to close the sizeable health and protection gap in Asia.
 
“Underinsurance in Asian markets mean that out-of-pocket medical expenditure remained extremely high, with an estimated 40% of medical costs borne by customers in 2012. By 2020, the health and protection gap is expected to hit U$226 billion,” said Mr Peter Lau, Head of Macau, FWD Life. However, the advent of a middle-income class in a region boasting the highest saving rates in the world could also mean major opportunities for insurers, he added.
 
Varied suggestions in addressing issues
Ms Elaine Chan, Senior Head of Medical Division, Zurich Insurance, said that insurers could play their part in closing the protection gap by extending coverage to substandard lives or “disease-oriented” people. Partnering with pharmaceutical companies allows insurers to tap into their scientific expertise and structure more suitable products.
 
Partner Re’s Head of Life Dean Graham suggested that less stringent capital requirements would give insurers more leeway to provide appropriate long-term solutions, a view echoed by Mr Makoto Okubo, General Manager, International Affairs, Nippon Life. Taking note of the scarcity of quality long-term care facilities, insurers should also consider providing such facilities, said Mr Graham, a move that would enable them to control costs.
 
Challenge risk appetite to stay relevant
Mr Greg Solomon, Regional Director, Head of Life & Health, APMETA, Willis Re, said insurers were more often than not too risk-averse, leaving customers with medical conditions to fend for themselves. There is a need for insurers to challenge their risk appetites to remain relevant in the market, or else customers will fail to appreciate the need for insurance products.
 
However, Ms Irene Ng, Regional Chief Underwriter, Asia, GenRe, said that customers also had a role to play in containing swelling health expenditures. As pricing and affordability remained significant challenges for insurers operating in the healthcare space, insurers could consider ways to package products that put an emphasis on customer responsibility and disincentives over usage of healthcare services, she said.
 
Social media is the new norm
Having an effective presence on social media is no longer a choice, but a must for insurers as their viability would ultimately depend on it, said panellists at the EAIC. While some may still be formulating their social media strategy, it is essential that companies are present in the space or risk being side-lined. 
 
“If you are not where your customers are, there’s a good chance you may lose them to competitors who are on those platforms. People these days can change their insurers very easily,” said Mr Don Tan, Senior Vice-President, Business Consultancy Department at 121 Advisor. 
 
Cost-effective business function
Ms Nini Sumohandoyo, Corporate Marketing & Comms Director at Prudential Life Assurance in Indonesia, said while her company does not use social media for commerce, it has found it effective in the area of consumer education and recruitment. “Through using LinkedIn, it has helped us save 20% of our headhunting costs,” she said, adding it is a potentially useful tool in recruiting agents too. 
 
In a presentation that preceded the discussions, Mr Jerome Matrundola, Head of Strategic Initiatives, Hong Kong & Southeast Asia, RGA, said social media could be utilised for various means, including brand management as well as customer engagement. He added social media was a rich avenue for insurers to gain valuable insights about their customers, which may be used to improve underwriting, pricing and claims among others. But other than the benefits, there were also nagging questions around preserving brand reputation as well as crisis management.
 
Stiff test to hone insurers’ speed and dynamism
On responding to negative exposure on social media, Mr Tan said insurers should leverage the platform to manage complaints, viewing it as a “placeholder” to monitor and address negative views of the company. 
 
Mr Shasi Gangadharan, CEO of Chubb in Singapore, added social media provides a stiff test in crisis management, an area which insurers can improve upon. “Social media is fast and furious, and it is a chance for companies to demonstrate their accountability through effective crisis management,” he said.
 
Taipei EAIC Declaration

By all accounts, we all had a very successful 27th EAIC, thanks to the warm hospitality of the Taiwanese hosts. Asia Insurance Review as the official Media Partner is pleased and honoured to bring you the Taipei EAIC Declaration for your records.
 

27th EAIC Conference, 2nd to 6th November 2014,
Theme: “Insurance at the Cross Roads: Coping with the Change”
 
The Members of the Executive Board of the EAIC and all Chief Delegates of the member cities agreed to increase regional business co-operation within the region and to expand the membership of the EAIC to include the cities in markets not yet members of the grouping. 
 
They also agreed to set up an EAIC-Under 35 Group to attract and develop the pool of young talent and professionals to be more engaged and active in EAIC matters.
 
Looking ahead, there are numerous challenges with the changing risk profile, regulatory developments, climate change, rising severity and frequency of Nat CATs, cyber threats and other enhanced risk factors. 
 
To cope with these challenges the Conference agreed that the industry must take urgent and concrete steps to:
Be more risk aware, risk conscious and innovative in launching new products to meet the changing risk environment;
Employ scientific and actuarial models to price the risks more accurately;
Promote the benefits of insurance to society more widely and intensify consumer education efforts in all member cities. 
Nurture the next generation of human capital and expertise needed to support business growth; and
Be focused on technical results with strict underwriting disciplines and the necessary risk management systems in place;
These measures, to be taken individually and collectively by insurance and reinsurance companies and the markets in the Grouping, will lead to a stronger insurance industry that will be inclusive and ready to face the winds of change head-on.

 

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