Asia to remain global insurers' "growth engine"

Region's growth opportunity remains fully intact despite massive global shifts

Asia to remain global insurers' "growth engine"

Insurance News

By Gabriel Olano

Over the past few years, Asia, especially Southeast Asia, was one of the most favoured regions for expansion for many multinational insurance companies due to a wealth of opportunities and socio-economic factors conducive to growth.

Despite the numerous changes brought about by the COVID-19 pandemic and a looming global economic recession, Bernhard Kotanko (pictured above) believes that Asia’s promise of growth is still mostly intact.

“Asia comprises a heterogeneous set of markets, each with their unique set of challenges and opportunities in the insurance space,” Kotanko told Insurance Business. “However, broadly speaking, Asia remains the global growth engine in insurance, specifically in life and health insurance. While we have seen declining new business recently in some markets mainly due to COVID, the overall structural growth opportunity remains fully intact.”

Kotanko said that three out of four Asian families face a protection gap if the main breadwinner dies or becomes disabled. Furthermore, 10% of household income would be needed to fill the prevailing health protection gap, which is currently funded mainly with out-of-pocket expenses.

“There is a gap between the savings available in retirement and the actual life expectancy, which would require additional retirement savings to cover on average eight to 10 years of longevity,” Kotanko said. “Similar data also indicates that there are gaps in property and liability protection for commercial and private households. Hence, Asia remains the primary growth opportunity in global life insurance.”

Kotanko enumerated five main areas that insurers are concentrating on in their expansions across Asia:

  1. Distribution innovation – mainly by adding digital capabilities, analytics and marketing, improving activity management, and solving for high churn of agents
  2. New business building in health and retirement
  3. Financial effectiveness, including IFRS17 transition and improved technical economics
  4. Augmenting agility, productivity and innovation through the wider use of technology, automation and process redesign
  5. Portfolio optimisation by seeking more growth spaces across the region, such as in India and Vietnam, as well as within the verticals of each market, such as in affluent urban segments or for underserved needs

“Most insurers in Asia still follow a largely integrated functional operating model,” Kotanko said. “However, we see potential to enhance capability and productivity by increasingly concentrating efforts on selected parts of the value chain and outsourcing others, for example in operations, technology, as well as unconventional areas in digital marketing and claims.”

Ageing in Asia and the insurance market

While many emerging Asian markets have a young population and a fast-growing middle class, more developed economies such as Japan, South Korea and Singapore, are rapidly ageing. This results in an increased demand for retirement-related insurance products in these markets.

“At this point we are seeing a growing retirement protection gap combined with an increased soul-searching of consumers on how to best save for retirement,” Kotanko said. “We also see high allocations in cash and real estate in many Asian markets. These cash allocations do not yield much return and depreciate in an inflationary environment, while real estate also could come under more pressure in some geographies. Therefore, there is a real latent need for better retirement solutions. However, the insurance and pension sector has yet to develop broader solutions.

“In many markets, incentives are also not strong enough for consumers to commit to more long-term retirement savings. We see this as a major structural growth opportunity for insurers and pension specialists. A key element will also be to raise financial literacy and to provide more comprehensive financial advice for long-term life planning.”

What are your thoughts about the future of insurance growth in Asia? Let us know in the comments.

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