With Asians finally showing their might, the world is looking towards Asia, be it the auto industry or the technology industry. However, for insurance companies, Asia was not on the priority list for a long time. The scenario is changing. With the middle class population in Asia growing, ageing and more importantly getting richer, Asia is the market to be in.
Sample this: According to a report by BCG consultancy, the region’s middle class is expected to balloon from 525 million in 2009 to 3.2 billion by 2030. This coupled with increase in life expectancy will also lead to a rise in pensioners and people opting for various retirement policies.
Hence, it is not surprising to see global players rushing in to grab a share in the market. In 2013, the Asia market grew by 7.3% against 1.4% in Europe and a negative growth in North America (data by Swiss Re). In 2014, total premiums in Asia grew by 6.5%, compared to 0.4% in the US and 3.5% in Europe.
“The increasing individual wealth and ageing population will create opportunities for insurers to introduce new products to consumers that protect their hard-earned financial and physical assets,” says David Fried, Chief Executive Officer, Emerging Markets, QBE Insurance Group. Amid this trend, personal lines insurance will remain an integral part of any insurance company’s growth strategy in Asia.
“Asia’s rapidly ageing population will boost demand for retirement/savings products while the growing middle-income class is expected to generate a sizable income effect on insurance demand, especially on personal lines,” says Clarence Wong, Chief Economist Asia, Swiss Re.
For example, the exponential growth in middle class and wealth across Asia Pacific results in rapid surge in automobile ownership and the need for motor insurance. In China, the number of privately owned automobiles is expected to grow to 200 million by 2020.
Expansion of the personal line of insurance business with strategic partners is part of the growth strategyfor QBE in Asia Pacific.
“There are many opportunities when you have a rising middle class. For instance, the segment will also make more frequent trips abroad, which leads to greater need for travel insurance. They will also be more aware of their health, thus leading to an increase in demand for medical insurance,” says Fried.
For the first half of 2015, the life insurance segment in Asia saw strong momentum despite less sanguine economic outlook mainly driven by Vietnam, Philippines and China. Also, businesses in advanced economies like Japan, Korea, Singapore and Taiwan performed well. “For life insurance, product innovation and diversification of distribution channels will remain key growth drivers,” remarks Wong.
In the non-life insurance segment, premium growth has moderated in advanced Asian markets in the first half of 2015 both as a result of slowing economic growth as well as intensifying price pressures while emerging Asia continued to outperform. “Growth in Asian non-life insurance is supported by robust economic growth, infrastructure investment and regional trade,” says Wong adding that rising risk awareness, urbanisation, rising property/car ownership will also boost demand for non-life insurance products in the region.
Yet Asia continues to remain woefully underinsured. According to a Swiss Re report titled ‘Sigma Insurance Research – World insurance in 2014: back to life’, in 2014, insurance penetration (defined as premiums as a percentage of GDP) was 5.2% in Asia, compared to 7.3% in the US, 6.8% in Europe and 6.2% globally. Within Asia, insurance penetration was 11.4% in advanced Asia, but only 3.1% in emerging Asia. And the figures have not changed much in the past five years.
The main obstacle is cultural. Most Asians believe in using their savings to address medical or health issues rather than paying a third party to do the same. As a result, insurance companies are coming up with products to suit local needs and demands. For instance, many companies are now offering hybrid policies combining both savings and protection components. One can opt for a savings product that coversa child’s higher education with an insurance element that says that contributions will continue even if the breadwinner dies. In fact, some products are designed to meet specific customer segment like bus drivers for whom the insurance cost is kept low.
The companies are even coming up with innovative ways to distribute their products. For instance,
a company in Indonesia is selling insurance through scratch cards in a practice called mobile microinsurance. Buyers text the number revealed by scratching a card to the relevant firm to activate the policy. Microinsurance aims to cover lives and protect the assets of low-income individuals and families from natural disasters, illness, death, accidents and crop failure, amongst others.
Even on other fronts, there are challenges for insurance and reinsurance companies in Asia. Though there are ample opportunities for insurers and reinsurers, protectionist policies in some countries threaten to limit the ability of international insurers and reinsurers to contribute to local insurance and reinsurance markets.
Cristina Mihai, head of international and reinsurance at Insurance Europe, the European insurance and reinsurance federation, feels that protectionist policies that exclude or penalise foreign reinsurers can lead to a critical build-up of risk in one country, if a large claims event happens. “This puts both the domestic insurance and reinsurance market, not to mention the country’s wider economy, at risk. The whole point of reinsurance is to spread the financial impact of an event widely and thinly across the global market, rather than concentrate it in the one place which is already suffering from a catastrophe.”
The Insurance Regulatory and Development Authority (IRDA) in India regularly introduces new regulations without adequate consultation or proper acknowledgement of industry concerns.
Even in China, transactions conducted by foreign insurers’ – including reinsurance, asset and other transactions – are governed by a different regulator than transactions of domestic insurers. “Foreign insurers face, in effect, very complicated procedures, which include having to obtain approval for every transaction (e.g. reinsurance, asset transaction) from the China Insurance Regulatory Commission (CIRC),” says Mihai.
Hence, effort is needed from the government’s side as well to help the insurance market in Asia grow. Opportunities are expected to arise as many regional governments are moving to support a greater role for the private sector in providing health and pension benefits. In India, for instance, the parliament passed the Insurance Bill, which increases foreign direct investment equity cap in joint ventures from 26% to 49% and allows foreign reinsurers to open branches in India.