The growth of the insurance business in Asia in the region can be attributed to regulatory restrictions on issuing carrier licenses, increasing operational discipline and efficiency among Asian insurers, and the impact of the COVID-19 pandemic on the region. This article also discusses the challenges that the industry faces, including the impact of climate change and the COVID-19 pandemic. To read more about the latest trends in the insurance industry in Asia, click the links below.
Impact of COVID-19 pandemic
The COVID-19 pandemic has impacted business volumes and insurance claims in Asia, but insurers were not completely prepared for its impact. Some insurers are considering including vaccination status as a rating factor for certain products. While the actuarial justification is clear, vaccine hesitancy has led to vocal pushback. As a result, insurers’ liquidity has suffered.
The recent outbreak of COVID-19 has prompted insurers to accelerate their digital transformations and improve customer-centricity. The pandemic has shifted consumer behavior and priorities. Insureds are turning to Chinese consumers and agents for peace of mind. Meanwhile, insurers must adapt to the new business model and change support mechanisms for agents. Whether or not insurers choose to pursue these strategies will depend on how they respond to the epidemic.
While most insurers are optimistic that they have enough assets to cover the disease for 12 months or more, 25% believe that COVID-19 will persist longer than that. While some insurers have attempted to model the pandemic risk and conduct stress tests, many of them have done nothing to prepare. The National Health Insurance Commission should consider implementing readiness audits for insurers to assess how prepared they are.
Operational discipline and efficiency of Asian insurers
Operating with the agility of a small start-up, the Asian insurance industry is poised to benefit from Western insurance’s lessons in operational discipline and efficiency. As Asia’s fast economic growth drives rapid changes in insurance regulations, the Asian insurance industry has adopted a “test, learn, iterate” approach to decision making. By taking a similar approach to innovation, Western insurers can push their organizations to make faster decisions and adapt their business models to the changing insurance market.
Western insurers have long focused on increasing operational efficiency through the optimization of their operations. Asian insurers, however, have traditionally underinvested in operational discipline, failing to recognize that having dozens of different branches with varying operating practices increases costs and introduces significant compliance risks. However, implementing new technology that leverages analytics, robotics, and NLP can help Asian insurers become more effective. Achieving operational discipline requires new investment.
Impact of climate change on the insurance industry
As global temperatures increase and climate risks become more intense, the insurance industry in Asia is a critical tool in helping economies weather these challenges. A recent pandemic in Asia, Covid-19, exposed the vulnerability of social and health infrastructures. Although Asia faces new challenges, its fundamentals remain strong, with growth, urbanization, and wealth creation leading the world. These developments, however, require the insurance industry to be proactive in protecting its customers from future risks.
The insurance industry is increasingly investing in solutions to mitigate the effects of climate change. For instance, the Dresden Bank has launched a green bond project with the European Investment Bank that is set to become the largest index-linked joint bond in history. This bond’s income will be used to finance renewable energy efficiency projects. In addition, American International Group recently invested in Sindicatum Carbon Ltd., a leading developer of projects to reduce greenhouse gas emissions. Dresdner Kleinwort Wasserstein has also been investing in carbon trading in Europe, leveraging the European Union’s carbon fund.