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Perspective

Growing Insurance Demand in Asia - Insurers Need Reinsurance With Staying Power [Video]

February 24, 2015| Von Pietro Toffanello | P/C General Industry | English

Region: Asia Pacific

While in Taipei for the November East Asia Insurance Congress, I was interviewed by AM Best TV. The theme of the conference - “Insurance at cross roads: Coping with change” - could not have been chosen better, thinking about how fast insurance is developing in the Asia and Pacific region.

When looking at Asia in particular, a common mistake many uninformed observers often make is to fail to recognize the striking diversity among the region’s markets: some are already mature while others are maturing very rapidly.

Broadly speaking, I think four underlying trends are fuelling growth in Asia’s emerging markets.

There’s a growing middle class, with more people looking for insurance coverage to protect their assets, meaning property to start with, but increasingly also their liabilities.

Linked to that growing demand, is the seemingly irreversible trend towards urbanization in the region, with an increased concentration of values at risk.

Another specific driver of change is regulation, with companies under increasing pressure to pay more attention to governance, risk management and quality of the capital they access for risk transfer purposes.

The fourth and inescapable factor is climate change. The frequency and severity of cat events is rising and, because of urbanization, Asian countries must deal with ever increasing losses.

There’s still a big gap between economic losses and insured losses in Asia, presenting the insurance industry with challenges - but also with opportunities to grow in the future.

The onus is on national governments to focus on mitigation and promote better risk management practices. This includes enforcement of building codes, without which the insurance sector will find it hard to provide peace of mind through affordable pricing in Cat-exposed areas.

It’s true that there’s pressure on insurance pricing right now because of competition and plentiful capital. Compared to other parts of the world, Asian economies are still growing strongly (albeit at a slower pace than before). Therefore more insurers - and reinsurers - want to be active in the region, adding to the pressure on prices.

Will your reinsurer be a reliable and stable partner over time? We think it’s important to have a genuine dialogue with our insurance partners about what is at the very core of our business: understanding, assessing and underwriting risk. We want to work with insurers that don’t see reinsurance as a commodity but as a partnership that will add value by helping them retain more risk and improve their earnings over time.

There’s a lot of undifferentiated reinsurance capacity out there and more alternatives than ever. But is the time horizon of these alternatives and the investors backing them the same as that of their insurance clients?

 

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