Growth Opportunities for Insurers in Asia-Pacific Despite Economic Slowdown

In spite of an economic slowdown and evolving regulatory change in Asia-Pacific, growth opportunities exist for insurers in areas such as wealth management and personal insurance, as well products and services to help customers meet their complex financial planning needs, according to Ernst & Young’s Asia-Pacific Insurance Outlook 2013.


“Growing wealth from the burgeoning middle class represents a major source of premium and profit potential,” says Paul Clark, Asia-Pacific Insurance Leader at Ernst & Young. “This is complicated by the diversity of mature, developing and emerging insurance markets across the region. Balancing risk against prudential regulation – coupled with increased focus on improving consumer protection and increasing product transparency will be a prime consideration for insurers in 2013.”


Identifying the market forces that will influence insurers’ strategies for the region in 2013, Ernst & Young says domestic and international insurers will benefit from the region’s organic premium growth potential and rising insurance penetration rates.


In the current economic environment, insurers will need to be more selective in which markets to enter or exit, which distribution channels to utilise and how best to manage costs while maintaining productivity, says Ernst & Young.


"They need to ensure their goals and strategies are aligned with target acquisitions and that they have invested in the operational support systems to make the ventures succeed. The increasing emergence of health insurance and pension programs across the region also present strong growth opportunities."


Changing Regulatory Environment
Insurers in Asia-Pacific are confronted by a patchwork of insurance regulations including Solvency II, US risk-based capital standards, and insurance accounting standardization with International Financial Reporting Standards (IFRS) convergence. 


At the same time, regulators are seeking to bolster consumer confidence in the insurance industry. Against a backdrop of regulation, insurers in 2013 must consider far-reaching changes to operations and structures.


Many companies face difficult decisions, including rebalancing their product mix based on capital allocations, determining which businesses and lines to divest, and which reinsurance strategies are optimal, given recent natural catastrophes.


Catastrophe Risk
Natural disasters, such as the Tohoku earthquake and tsunami, earthquakes in New Zealand and massive floods in Thailand and Australia, are reshaping insurer views of risk and reinsurance.  The severity and frequency of catastrophes is compelling insurers to cede more risk to reinsurers.


A challenge for many markets in Asia-Pacific is the affordability of insurance; simply passing on the increased cost of reinsurance is often not an option.  Recent catastrophes further demonstrate new dimensions of risk correlation and catastrophe modeling.


Technology Investment
The introduction of more complex products and data analytics, in combination with risk-based regulations, are pushing legacy systems and processes to the limit.  Consequently, technology investment to support growth, and improve operations and risk management, is a strategic necessity that will require prioritizing expenses and justifying benefits versus costs.


At the same time, the emerging regulatory environment will act as a catalyst to replace disparate legacy IT systems that were not designed for multiple currency/product strategies.  For insurers developing cross-border operations, data security and the integration of diverse back-office systems are further challenges.


With Asia-Pacific accounting for half the world’s mobile population (2.9 billion mobile subscribers in 2010), keeping pace with products and services catering to the mobile lifestyle will require new insurer distribution and service strategies.


Alternative distribution channels, such as web portals, are being implemented across the region to supplement or replace traditional agencies, although bancassurance continues to grow. 


Ernst & Young’s global consumer survey found that more consumers are researching products and carriers online prior to their purchasing decisions. As mobile technology gains a foothold across the region, insurers need to identify solutions to retain market share and gain competitive advantage.


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