The insurance riddle in Asia

Before we being, strictly speaking, there is no such thing as an Asian insurance market. They are, in reality, myriad, each different from the next in terms of maturity and insurance penetration. In light of the above, China and India have emerged as the monoliths since the early 2000s. This means two new giants that enjoy, respectively, growth estimated at between 13% and 15% every year, equivalent to some $150 bn in premiums for the Middle Kingdom, and $25 bn for the subcontinent.[1] These are astronomical sums, the result of constant growth that has come to supplant established markets like Japan, South Korea, and Australia. Like in other emerging markets like Malaysia and Indonesia, where annual growth is estimated at 4% to 8%, the insurance penetration rate in Asia is today displaying undeniable growth. But what’s behind it?

The economic development of 1990-2010 brought with it the emergence of a new middle class, now worried about insuring itself as well as its property and assets. As for Asian businesses, manufacturers primarily, they are now fully exposed to the expectations of global markets.

However, globalisation does not mean continental standardisation. In the north, big local insurance companies compete for a market that gradually began opening up to foreign companies in 2018. This is the case for China, Japan, and South Korea. There is a liberal trend that reflects that already underway in South-East Asia, in Malaysia, Thailand, and Indonesia. These are less mature markets within which international insurers are building their portfolios and their businesses by selling insurance products through local insurance companies: the “licensees”. In the reinsurance game, two hybrid hubs are playing their cards right: Hong Kong and Singapore. True hubs for insurers from all over the world, both cities serve as launchpads to the continent’s north or south-east. And it all remains tightly integrated into Lloyd’s market in London.

What is the Lloyd’s market? It is a place where business is conducted amicably. A place where vendors (insurers offering their coverage) can meet buyers (brokers working for clients keen to insure). And here appears another stakeholder in this ecosystem: the broker. Brokers are very important as they serve as the first point of contact for clients seeking coverage. There are swathes of small brokers in Asia who, when all lumped together, hold a large part of this sought-after market. Is there an opportunity here for major international brokers, a million miles from a saturated European market? Whatever the case may be, what appears before us is a rapidly growing geographical area that is making more and more room for international players. All the more so today, with current events bringing with them new risks.

Beyond COVID-19, another political crisis has shaken the Hong Kong insurance hub, with a real impact on the local market. On 9 June 2019 one million people (so claim the organisers) took to the streets in protest to a Chinese bill that would authorise extraditions to the mainland. It was the spark for a protest movement that would burn for all of 2019. Largely put on hold thanks to the pandemic, the protest movement was stopped in its tracks in June 2020, when Beijing enacted the national security law. That was all that was needed for Washington, in the middle of campaigning for the presidential election, to announce retaliatory measures that included an end to its special relationship with a special Chinese region.

Unsurprisingly, this restless climate reinforced the uncertainty arising from the already strained trade discussions between the two great powers. Yet another factor which has fed new geopolitical friction in South-East Asia, and had a lasting impact on the local market, and the insurance sector in particular.

A number of insurance segments have been severely affected. These include life insurance, as well as other policies for “special” risks, such as insurance coverage for the culture and tourism industries. The first has seen the flight of its Chinese policyholders, buying “offshore” insurance policies in Hong King. This is a bad sign for both local and international insurers, who are eyeing their losses if this branch continues to be penalised. As for the second segment, it is, like much in our time, on hold during the pandemic.

And yet, before the coronavirus crises there were high volumes of claims. Cultural events cancelled (exhibitions, concerts), TV production postponed… the sector has been rocked by the pandemic. Not that insurers are recording losses, but this languid market naturally translates into less policies, as there are fewer incidents. Which is only right: a work of art can’t be damaged if it never leaves its plinth. This explains why few policies providing this kind of coverage have been taken out recently. So what now for those in the sector?

Some incidents never change. And with good reason: by its very nature, Asia’s topography means that some areas will be ravaged by natural disasters year after year. In Japan, typhoons, hurricanes, and floods are the bread and butter of this population which is widely insured as a result. The opposite is true in the Philippines, a country in the Western Pacific with an industrial fabric that is less dense than its neighbours, and little insured. If these major events can be neither predicted or avoided, there is another kind of incident to which Asian public opinion remains particularly sensitive: agri-food and consumer products. Why? There is a certain culture of perfectionism with regard to products in certain markets, and consumers are increasingly demanding. As a result, recall campaigns are not uncommon, at the risk of occasionally evolving into full-scale food industry scandals as was the case with the milk containing melamine in 2008, or the formaldehyde-tainted cabbages in China four years later. Suppliers are increasingly attentive and are often protecting themselves with Product Civil Liabilities insurance.

This is just one example of where loss adjusting is called for. Where Europe and Asia meet: some pointers.

This is one of the specialisms of an international insurance company with a presence on more than three continents. One that remains intimately linked to its domestic market. In view of the ecosystem we described above, international loss adjusting is often taken out as part of the “master” insurance policy for group-wide insurance. Operating in Hong Kong and Singapore, as well as directly within Europe or the United States, these foreign (re)insurers can hold 90% to 95% of insurance policy risk for particular local clients, especially in Malaysia and Thailand. This is a vast majority that gives them full authority of managing incidents. They are then free to contract it out to a loss adjusting company specialising in the area in question. We then work on behalf of a European producer held liable by an Asian distributor or client following a design or manufacturing defect. Incidents are, therefore, varied in nature. Here are a few examples to illustrate this.

Several thousand bottles of wine produced in France are exported to Japan. Sold in supermarkets, a number of customers complained that they have found pieces of glass in their wine. This then invoked a recall campaign. Another example would be in industry where machinery designed and produced in Europe and then used in high-volume Chinese production lines encounter serious performance issues. Called in by a European reinsurer following delivery or as part of a product recall, the loss adjuster then travels to meet the various injured parties and carry out the initial technical inspections: the nature of the damage, product performance, inventory to check volumes…

With their contacts, the loss adjuster based in Asia harnesses their dual European and Asian culture. They pair this asset with an excellent ability to inform on the best actions to take. Local markets feature low insurance maturity. In fact, most injured parties don’t necessarily understand the loss adjusting process and aims. Meetings are therefore held in Chinese, Japanese, or English, just as in negotiations that are governed by goodwill and compromise. The injured party even often requests the commercial solution before the nature of the damage has been established. We take these unique cultural contexts and local particularities into account so that we can propose an approach tailored to all of our specialities, from internal and external fraud to Fine Art, information technology to cyber.

On this perplexing continent with its abundant cultural and linguistic peculiarities, loss adjusters also rely on their network of local partners to support them and together develop intercontinental loss adjustment, between Europe and Asia. Within this network, loss adjusters also fulfil another role, that of a project manager serving as a liaison between Asian parties and European insurers. Working in project mode in this way is a USP in the region. In addition to local loss adjusters and the added value they bring, security audits may be carried out by our partner consultants who are true specialists in consulting and prevention for the clients of insurers and brokers: financial institutions, aerospace, luxury brands, wholesalers… So many business sectors served by a comprehensive range of services and an agile methodology that strives to meet the full range of needs, meet the challenges of all parties, before and after an incident.

Asia is a major continent in the global economy, so multifaceted that it is best approached with humility. Too often misunderstood in the West, the particularities and cultural subtleties of each country sometimes slow the insurance process and create many niggles for all stakeholders, from the policyholder to their client, and including insurers. This means that smooth communications between local stakeholders and international contractors is essential. It must be rooted locally through their network, but also develop real agility in managing relationships across varied, diverse cultures.

Timothée GRANGE – Loss Adjuster – Managing Director Asia-Pacific

Stelliant Corporate Loss Adjusting

[1] Making the Most of the Asia-Pacific Insurance Boom: The region offers huge opportunities for insurers, but the rules of engagement are rapidly changing, Bain & Company