The Changing Asian Insurance Landscape - Part 3

28 June 2018

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. 

  1. Increasing quality of client servicing with InsureTech
  2. Opening of Asian regulatory environment
  3. Flattening of rates and increasing frequency of Natural Catastrophes
  4. Fast growth of cyber insurance

3. FLATTENING OF RATES AND INCREASING FREQUENCY OF NATURAL CATASTROPHES

Despite an increase in the frequency of natural catastrophes (NatCat) in Asia, insurance premium rates have generally flattened rather than increase as some might have speculated.

NatCat frequency has increased, although loss value declined in 2017. It is now riskier to do business anywhere in the world due to higher exposure to NatCat. Worldwide, the frequency of NatCats has increased from an average of 313 events per year in 2011 to an average of 325 events in 2017.

In 2017, Asia alone accounted for ~34% of the global NatCat events. The average frequency of natural disaster events in Asia increased from 129 events per year in 2011 to 131 events per year in 2017.

In 2017, economic losses from NatCat in Asia amounted to USD 31 Bn, which is lower than the 2009-2017 average of USD 72 Bn. Of these losses, the proportion of insured losses was USD 5 Bn in 2017. In 2017, the costliest event was a USD 6 Bn economic loss caused by the flooding from China’s Yangtze River Basin Region. Due to low insurance penetration, insured losses for this event were negligible.

However, rates have generally flattened instead of lowering year-on-year like it has been doing for the past decade. The trend of premium rates lowering year-on-year has generally shifted to flattening of rates across the industry. Within Asia, emerging insurable risks (such as Cyber) and certain loss-affected segments (NatCat prone zones) have experienced hardening of rates primarily due to increased cases of loss incidents or low capacity.

“The natural catastrophes in the Asian region may not affect renewal rates or reinsurers’ financials as much, given the massive under-penetration,” said Amer Ahmed, CEO of Allianz Reinsurance.

Other segments (such as marine insurance, Malaysia’s fire and motor insurance) have experienced soft market conditions throughout 2017 wherein the premiums rates are either reducing or facing negligible changes either due to excess capacity or low incidents of losses or lower penetration. Also, the decline in average value of losses from NatCat events in Asia is creating a difficult environment for insurers to price catastrophe coverage. All of these factors have resulted in a general flattening of rates. 

Look out for part 4 of this series where we discuss how the "Fast growth of cyber insurance" impacts the insurance landscape.

Read part 1 : Increasing quality of client servicing with InsureTech

Read part 2: Opening of Asian regulatory environment

For further information, please contact Graham Edwards, Regional Director of Sales and Marketing at Graham_Edwards@jltasia.com