Change first or be changed — this is especially so with the Fourth Industrial Revolution shaking the foundations of industries around the globe. With the Internet of Things shifting businesses towards higher interconnectivity and artificial intelligence automating work processes, the insurance industry can either harness the transformative powers of these developments or lag behind clients’ rising expectations and evolving needs.
JLT Asia has reached out to our strategic partners to discuss the results of the four broad changes driving the transformation of the insurance industry in Asia.
The following key changes will be discussed in this 4 part series.
- Increasing quality of client servicing with InsureTech
- Opening of Asian regulatory environment
- Flattening of rates and increasing frequency of Natural Catastrophes
- Fast growth of cyber insurance
2. OPENING OF ASIAN REGULATORY ENVIRONMENT
Recent regulatory changes have allowed foreign insurers to increase their presence in Asian economies — either through an increased stake in the domestic company or license to open a domestic branch. This, in turn, would drive further growth in the insurance industry through increased penetration levels and technological innovation.
Revised legacy regulations now allow for higher capacity / investments in Asia. Over the years, the regulatory norm in most of Asia was a closed framework with limited exposure of foreign owners which limits the product development and risk capacity in the insurance sector. Recently, changing business ecosystem and rising importance of technology has driven the revision of legacy regulations in several Asian countries to allow foreign ownership, relax regulatory norms or drive innovation and InsureTech.
Angela Kelly, CEO of Lloyd’s Asia, noted that regulations are essential to protect consumers. “They have a vital role in supporting the insurance industry in its development efforts,” she said, “and it is important to have a consistency of standards across Asia for the region to remain competitive.”
Below are key regulatory changes, observed in recent times:
• In December 2017, the Indian insurance regulator (IRDAI) announced that it will allow private equity (PE) funds to promote Indian insurers with stricter long-term commitments. Currently, the regulator has suggested a 10-year lock-in for PE firms holding a stake of more than 10% in an insurance industry, so as to reduce risks as investor interest grows. Since the insurance market penetration in India is half the global average, the regulator deems this to be an opportunity for investors. This would ensure long-term capital availability for insurers who have PE firms as their promoters.
• In March 2016, the regulator permitted Lloyds to establish an office in India for its reinsurance activities. In the following year, Lloyd’s opened its first branch in India to provide reinsurance support for specialty insurance covers.
• In March 2015, the regulator increased the limit of foreign ownership in the insurance sector from 26% to 49%. In addition, foreign reinsurers were permitted to perform business in India directly through branch offices or a local presence. Post this regulation, players such as Swiss Re, Munich Re, General Re, Hannover Re, and similar others were granted licenses by the IRDAI to set up branches.
These regulations allow an influx of long-term capital for upcoming/existing insurers in the form of PE-investments. Also, the increase in limits of foreign ownership would definitely increase the domestic capacity and insurance penetration levels in the country. Moreover, increase in the number foreign reinsurers in India would lead to an increase in capacity.
• In November 2017, the Chinese government announced that it will open its financial services industry for foreign investors. Within the life insurance segment, foreign owners are allowed to acquire 51% stake in life insurance companies after three years of announcement and this cap would be removed after five years after the announcement. Previously, foreign ownership was only restricted to Hong Kong-based firms; but this change encourages more foreign firm to invest in the Chinese mainland.
This regulation allows foreign insurers (such as AIA, Aviva, and Prudential) an opportunity to expand further into China (especially the smaller cities) and increase insurance penetration and coverage. According to the Chinese regulator, the relaxation of rules would allow foreign insurers to enter its health, disaster and pension markets.
• In January 2017, the Ministry of Finance announced that it will relax its restrictions on foreign ownership of a licensed insurance company (both life and non-life). Previously, the foreign ownership was limited to 49%, but this change would allow the ownership to increase from 49% up to 100%.
The change would allow Thailand to attract more insurers to set up a base or an entry point for South-East Asian region (ASEAN) and become an insurance hub of the ASEAN economic community. Also, the entrance of foreign insurers would lead to increased penetration levels and industry growth.
• In June 2016, The Monetary Authority of Singapore (MAS) launched 'FinTech regulatory sandbox' which encourages both local and international start-ups/investors/players to develop innovative financial products (including InsureTech). MAS would provide a testing environment and an opportunity for wider adoption of the product within and outside of Singapore.
Look out for part 3 of this series where we discuss how "Flattening of rates and increasing frequency of Natural Catastrophes" impacts the insurance landscape.
Read part 1 : Increasing quality of client servicing with InsureTech
For further information, please contact Graham Edwards, Regional Director of Sales and Marketing at Graham_Edwards@jltasia.com