Insurance – the Asia pivot: A strategic play for the long-term

Insurance – the Asia pivot: A strategic play for the long-term | Insurance Business Asia

Insurance – the Asia pivot: A strategic play for the long-term

The following is an opinion piece, written by Andrew King, head of Hong Kong – Synechron.

It’s no secret that APAC continues to be a dynamic source of innovation and growth for countless companies across the financial services sector. With the promise of long-term growth, Global Tier 1 banks are becoming increasingly focused on Asia. Insurance firms are also undertaking an Asia pivot, with certain firms further ahead of the curve than others.

No market across the APAC region is the same for insurance firms, each country has its own nuances. China, Hong Kong, Singapore, Indonesia, Malaysia all have their own challenges, risks, benefits and insurers will have to carefully weigh up the pros and cons of which country will provide the right environment and supporting ecosystem to achieve their long-term goals.

The accelerated shift of focus away from the UK and the US, two of the world’s insurance market leaders, is largely due to Asia’s speed of economic growth, growing middle income group, Chinese de-regulation, increased consumer awareness and commitment to digital innovation. In Prudential’s most recent annual results, general insurance penetration in Asia was quoted to be only at 2.7% of GDP, compared with 7.5% in the UK. With penetration low, insurers like AXA, AIA, Allianz, Prudential – among others - see the real potential the region has to offer and are already starting to make a significant impact in the market.

China, for example, has been a strategic growth target destination for the global insurance market for years but until recently, was challenging to navigate due to rigid regulations. With recent macroeconomic and regulatory changes, the pivot to the China market and tapping into its roughly two billion inhabitants, has become a realistic prospect for foreign owned insurance firms.

In January of this year, AXA became the first domiciled reinsurer in China and Allianz became the first wholly owned foreign insurance company in the region despite the presence of foreign insurers in China still being very low. Global insurance leaders account from anywhere from 50% to 80% in countries in Southeast Asia, whereas in China, the penetration is only approximately 8%. With China due to surpass the US as the world’s largest insurance market by 2032 with US$2.36 trillion in premiums, even 5% of market share is able to contribute to significant revenue increases over the coming years.

Despite regulation now being less of a barrier to entry in China, some insurance firms still remain reluctant to enter the market – or do not possess the regional capability and knowledge to enter it successfully - and are instead focusing their attention on Southeast Asia. Countries like Indonesia and Malaysia are achieving significant growth for similar reasons to the increase in uptake of insurance in China: A growing middle income group, younger population demanding digital ready services and an increase in consumer awareness around insurance, specifically health and life insurance.

The health protection gap, currently estimated at US$1.8 trillion, is already substantial as consumers in Asia are under-insured and social safety nets remain limited, so insurers are keen to tap into the potential market. AIA launched its innovative digital service AIA Vitality, which helps customers form healthy lifestyles; Prudential’s end-to-end digital health app, Pulse, generated four million downloads since last year’s launch and is now live in eight markets. The demand for digital products across insurance, specifically within health and life, will continue to grow with a growing middle class across Asia seeking insurance coverage.

The life insurance market across Asia has vast potential too. China is the world’s second largest life insurance market and, in Indonesia, gross written life insurance premiums grew 11% even though penetration within the Indonesian life insurance market is still less than 5%. Although the margins would be low initially, the potential for a large customer base, and with Indonesia’s aspiring middle income group now comprising approximately 115 million of the country’s 268 million population, the customer base remains largely untapped.

However, the coronavirus pandemic and resulting claims, have seen some insurers needing to re-evaluate their pivot to Asia plans and instead eye their capital strength, as seen with the rumoured sale of AXA’s Singapore arm. Aviva’s recent sale of its Singapore business to digital life insurance provider, SingLife for £1.6 billion was also a signal of change. The decision may have come as a shock to some who see Asia as central to their strategic goals; however, many insurers will make their decision to pivot to Asia based on what will bring dividends to placate shareholders and where there is clear growth, opportunity and willingness from the company to build their long-term value. In the case of SingLife and the focus on health and life insurance within the region, the decision and opportunity were clear. On the flip side we have seen COVID-19 highlight which of those insurance firms can rapidly respond to customer requirements with extremely fast ‘time to market’ products as seen with Ping An, which launched its smart image reading system within a matter of weeks of the pandemic in February of this year.

The pivot to Asia is a long-term play for strong future growth where new, digital and innovative products will be able to grow with new customer segments. Understanding the nuances of each country within the region, the unique consumer behaviours and developing digital-focused products with the right customer experience and ecosystems, are how insurers who pivot to Asia will be successful. Those who are successful will reap the benefits in the decades to come.