For many Americans, especially healthy and young Americans, health insurance doesn’t exactly make sense. Why pay hundreds of dollars every month for the unlikely eventuality that a sudden illness or injury will occur? Surely there must be a better way; a health insurance system to provide preventative care and a dash of emergency coverage, designed for people who don’t often need to go to the doctor.
Actually, there is such a system – it’s called consumer-directed health care.
As AXA PPP recently released their premium increases for April, Globalsurance customers can be pleased to note that the six-month increase will only be about 3 to 5% higher, according to a clients plan level. AXA PPP’s first premium increase last October was about 4% across the board. This means that customers are seeing annual increases in premiums of less than 10%, which is average, if not lower, when compared to other insurance companies.
Here’s a question – why would a state refuse federal money? Governors and representatives may complain about Obama and his health care policies, but saying “No!” to millions in federal funding is a whole other matter. Still, that’s what many states are doing right now – saying “No” to the offer of federal money for state Medicaid expansion. Read more
MSH International entered the Chinese insurance market in 2001, setting up a Third Party Administrator service that allowed the parent company to establish MSH China. Based off their success in Europe, MSH began to offer new health and life insurance product options in the region. Read more
2012 saw the best financial results for international medical insurer William Russell, with a 30 percent increase in business from the previous year. The opening of a new sales support office in Hong Kong has also enabled the insurer to reach more clients in Asia, and ensures better service and support. Read more
William Russell has announced a new campaign for 2013 that is designed to combat trends of excessive premium inflation in the UAE. The international insurance provider has decided to offer increased flexibility to its clients when they make a choice on their medical network options and prices. Cheaper provider networks will soon be available for clients who are looking for a chance to manage existing claims costs at their own discretion, and based on their needs or situation at the time.
Read the rest of the William Russell & Medical insurance UAE article
Globalsurance continues to witness the falling rates of global health insurance inflation in the high-end sector, typically referred to as International Private Medical Insurance (iPMI). Average rates of inflation per year have typically hovered at around 11% over the past 5 years, but this year, AXA PPP has published an annual increase of just 8%.
As a key player in the health insurance sector, AXA PPP has the competitive advantage of being one of the largest and longest-running insurers in the world and they set a standard for different areas in the industry, including international health insurance inflation rates. One of the most influential factors for determining the cost of health insurance premiums is the cost of claims, and with that, the increase in premiums is typically a good indicator for the monetary changes in the cost of care and treatment.
Thanksgiving means a lot of different things to a lot of different people. For some, it’s a hectic day of travel and family reunion; for others, it’s all about the big game and the even bigger turkey; but nearly everyone can agree that Thanksgiving is an absolutely excellent excuse to eat good food with good people.
Unfortunately, Thanksgiving is also a time when insurance claims spike. Due to just a few dangers associated with the holiday, that final Thursday in November can expect to see claimants file for house fires, road accidents, and personal injury. These issues are to be expected, what with hubbub and hassle in the kitchen, along with long car journeys and unexpected bouts of wintery weather. However, you may be surprised to learn what many firefighters as well as other health and safety workers deem Danger Number One on Thanksgiving – deep fat turkey fryers.
Globalsurance, with great excitement, can announce that as of November 1st 2012, Allianz Worldwide Care individual premiums will increase by just 5 percent. This increase rate is all the more impressive when put into context with the 11 percent global average increase over the past 5 years across the Private Medical Insurance sector.
Despite bleak global economic outlooks and rising inflation, Allianz has remained successful in the iPMI sector and in the last five years their average increase has come in at only 8 percent as highlighted within Globalsurance’s latest Insurance Review.
Globalsurance can confirm that Bupa International’s medical inflation rate has come in below long term average which is good news for clients. Global medical inflation in the international Private Medical insurance (iPMI) market has been running at 10.8 percent on average for the past 5 years so although Bupa’s increase looks high by most inflation measures, it is actually typical within the iPMI sector.
Bupa International is unique as an insurer in that it has a bi-annual premium rate increase for individual international private health insurance policies and it changes its premiums twice per year – on the 1st of April and the 1st October. Earlier this year, Bupa adjusted its premiums by 6 percent and then by 4.3 percent this October meaning an effective rate of yearly medical inflation of 10.3 percent.
These changes relate to all of the company’s Worldwide Health Options (WHO) and Lifeline health insurance products.
AXA Asia recently announced major plans to expand its services across Asia by doubling the scope of its regional health business by 2015. The company released a statement on October 29 highlighting its plans, indicating that they will further develop services in regional markets by improving and expanding on the products they offer and focusing on health capabilities on a regional and local level.
“AXA Asia also builds on the capabilities of the worldwide AXA Group, which is a top five international health player, offering healthcare solutions with a global reach,” according to the statement.
Health advertising campaigns have already started and are being aired in different countries in the region, including Hong Kong, Malaysia, Thailand and Indonesia.
The insurance industry seems to be going through a lull. Things are quiet, with few major news events, no major catastrophes rocking the industry and a general sense of calm. How much of this is merely the swimming duck effect, with the appearance of calm on the surface, but energetic kicking happening under the water remains to be seen – but there is certainly a lot going on behind closed doors.
In Europe, the insurance industry is still working hard to effect amendments to Solvency II. As far as it is concerned, the proposed legislation is still far from the final draft, even after almost 10 years of planning and negotiating. Solvency II is going to force the industry to implement measures that will simply become an extra burden, with proposed capital requirements completely out of proportion to actual risks. One example often cited by opponents of the current version of the legislation, is that of Hurricane Katrina in 2005, which caused widespread damage resulting in US$40 billion of claims. While this was the most expensive mega-catastrophe in recent years, the insurance industry was able to absorb this hit and recover rather quickly.
Indeed, according to a recent report published by the Universities of Leeds and Edinburgh, the expected financial losses linked to natural catastrophes such as hurricanes and earthquakes are not of the magnitude to “justify substantially high capital holdings against catastrophe underwriting risk.” The report focused on U.S. insurers, but the findings apply to all those potentially affected by the regulations.
While negotiators and lobbyists in Europe and North America are working feverishly to keep the insurance industry as legally unfettered as possible, the sales and marketing departments also have their work cut out for them.
The current economic climate is putting a lot of pressure on insurance premiums, with many Europeans currently underinsured when it comes to life cover. One of the main reasons for underinsurance is that the products are seen to be expensive, and customers are looking much more closely at what they are spending their hard earned pennies on. This trend can safely be extrapolated to other types of insurance, as the economy is affecting individuals as well as businesses and organisations of all types and sizes. In the life cover market alone, Swiss Re calculated that the protection gap amounts to EUR10,000 billion across the 14 EU countries. This gap is basically the difference between projected amounts of money needed by dependents in the event of a person’s untimely death, and the financial provisions put in place to cover such an event.
In light of this, there is much work to be done to develop innovative products that offer clients an attractive deal. With such a stagnant economy, sales teams are going to have to work not only harder, but much more intelligently to improve their figures. There is certainly untapped potential in the European market, but without new products and bold strategies, only a small percentage of this potential will be realized. Insurers in the USA and EU are facing a lot of legislative uncertainty, especially so in America, as the government rolls out a raft of healthcare and health insurance changes, along with new taxes and regulation for insurers and re-insurers on the horizon. There is certainly a long uphill struggle ahead, but opportunity is often found in the midst of adversity. Although the demand for insurance will not be going away anytime soon, the nature of the business is changing somewhat, and insurers will need to adapt to stay in the game.
Emerging markets offer a whole lot of new opportunity, albeit with some risk and a lot of uncertainty. As the global shift eastward continues, money is flooding into Eastern Europe and Asia, which means access to a whole new set of customers, along with new cultures and completely different environments. Traditional insurance is doing very well in the developing world, and insurers are using strategies such as bancassurance very successfully to help them penetrate these new markets. However, because of the flexible and entrepreneurial nature of emerging markets, where many things are still in flux, traditional insurance companies are also having to face new challenges on a regular basis. Developing countries are not afraid to try something new, and have the luxury of being able to draw on the experience of more developed countries and businesses. For instance, there is a lot of interest being shown into using captive insurance as a solution to risk management and financing, especially based on the experience of large companies like BP in dealing with large scale disasters like the Deepwater Horizon spill in 2010.
Another area where there is a lot of upheaval and change in developing countries is in the area of healthcare. In 2011, the WHO’s 193 Member States committed themselves to reforming their health financing systems to move towards universal health coverage. The goal of universal health coverage is that all people can use the health services they need without being exposed to the financial hardship often associated with paying for them.
In the developing world, where a large majority of people live on a subsistence basis, very few can ever afford any kind of healthcare, yet these are precisely the people who need assistance and public provision of healthcare services.
Developing nations face this problem almost universally, and much work is being done to study possible ways to finance universal healthcare and to develop models that provide a better bang for their buck.
Currently, public healthcare is provided based on variations of two basic strategies.
In the first type, a country provides universal healthcare based on a single risk pool, of which all eligible people are members, and funds its system through general taxes. Usually, in this kind of system, healthcare is provided by publicly owned facilities. The NHS in the UK is a good example of this strategy.
In the second type of system, a government provides healthcare to its nationals via mostly private providers, and funds the system through payroll taxes. The government essentially pays for private healthcare on behalf of its citizens. There are usually a few different risk pools, which means that different classes of citizens pay differently and possibly also receive different treatment. The German system works according to these principles.
At the moment, a majority of developing countries have public health systems that use multiple risk pools, but the current trend is definitely towards broader and larger risk pools. Many feel that consolidating pools mean lower administrative costs and less fragmented and possibly unequal treatment. The general consensus is that bringing everyone into one pool can make healthcare more equitable because everyone is entitled to the same set of benefits.
The role of the private healthcare industry varies, but in a majority of developing nations, private services are incorporated into their systems, with the state buying private care for their citizens when the public services cannot provide the necessary treatment.
This would be the best system from the perspective of the patient, as excluding the private sector from a universal healthcare system generally produces double standards, where the poor go to publicly funded facilities and receive basic care, while the rich can afford the very best treatment in private hospitals and clinics.
Developing nations have a their work cut out for them, but at the same time they have a huge advantage with “greenfield” development opportunities – unhindered by archaic and inefficient systems, and generally, a public healthcare system which can only really improve.
Of course, the biggest concern when talking about health services anywhere in the world revolves around finances. Many countries remain uncertain as to how to finance universal health coverage. Medical services have an amazing capacity to consume budgets, and universal coverage seems to be simply unaffordable to many.
Pre-paid schemes such as health insurance, provide one solution to this problem. The WHO hold the view that health insurance and other prepaid health financing mechanisms, are a key route to universal coverage. Every year, out-of-pocket payments force millions of people into poverty. Larger risk pools, combined with a larger percentage of the population contributing to a healthcare fund, would make it affordable for most developing countries to extend a basic standard of care to all their citizens, and even provide subsidies for more advanced services at private facilities on a more limited basis. Increasing taxes or funneling revenue from national resources like oil or minerals for the specific purpose of providing improved healthcare is not a hard sell, as long as citizens eventually feel they get what they pay for. Not all countries will be able to start with a full range of medical services, but getting the ball rolling through pilot programs and incremental extension of public healthcare will mean that they can grow their systems in a controlled fashion, experimenting with new solutions and strategies as they go. Assuming that health ministers can keep their departments on course and free from the ubiquitous bureaucracy, the goals of universal health coverage might just be within their reach.
The International Association of Insurance Supervisors (IAIS) recently published a consultation paper titled, “Assessment Methodology for the Identification of Global Systemically Important Insurers”. In the paper, the IAIS proposed criteria which will be used to classify insurers as “global systemically important” and invited public comment until 31 July 2012. The paper was endorsed for consultation by the Financial Stability Board (FSB), which has been tasked with coordinating the overall global set of measures to reduce the moral hazard posed by global systemically important financial institutions.
“This proposed methodology results from intensive and thorough discussion within the IAIS based on the expertise from supervisors around the world,” said Peter Braumüller, Chair of the IAIS Executive Committee. “Based on a recommendation by the G20 Leaders and the Financial Stability Board, the IAIS has accomplished an important piece of financial sector reform.”
The system proposed by the IAIS is very similar to that used by the FSB to identify global systemically important banks, with some modification to reflect the difference in the Insurance business model. The intention is to be able to classify those insurers who have global significance and then, through relevant and effective legislation and continuing oversight, to maximize their stability and to minimize the effect of any financial disaster the insurers may suffer on the rest of the global economy.
Under the proposed IAIS criteria, insurers are categorised according to 18 indicators in 5 broad categories: size, global activity, interconnectedness, non-traditional activities, and substitutability. Four of the five categories are the same as for the banking sector.
The Financial Stability Board, a group of regulators tasked by the G20 nations to establish measures preventing another financial crisis as in 2008, will be using the criteria to examine a total of 48 leading insurers to determine whether they should be placed on a list of “systemic” financial institutions along with leading global banks. AIG, Allianz, Axa and Prudential are all seen as potential candidates for inclusion on the list. Insurers deemed to be high-risk could be forced to hold extra capital under new safeguards being drawn up by the FSB.
The insurance industry supports improved regulation, however, according to the International Association for the Study of Insurance Economics, commonly known as The Geneva Association, the proposed measures are still using too many banking-specific indicators, and have not been adequately modified to account for the fundamental differences between banking and insurance companies. The media and politicians tend to lump insurance and banking together under financial service companies, but the reality is that the two are fundamentally different businesses. In their response to the IAIS proposal on Monday, the Association highlights the fundamental differences between banking and insurance, and argues that research has indicated that the most accurate and efficient method for assessing risk in insurance is to focus on activities, instead of the institution as a whole.
While banks have “callable” funds, in that creditors can claim access to their deposits at short notice, insurers only have liability when an insurable event has occurred. Insurers also receive payment up front, while banks provide credit up front, and receive repayments later.
The difference between insurance and banking is clearly illustrated in how the same criteria indicate different situations for each industry. Diversification and global activity is a good example. In banking, an increase in the size and global activity of a bank means an associated increase in risk and global impact. It is precisely the opposite when it comes to insurers, because insurers use increasing numbers to lower risk.
John Fitzpatrick, the Secretary General of the Geneva Association, elaborates,”We know that if we add more size or diversify by line of business or geography, it further reduces risk. So rather than these being indicators of systemic risk, we think they’re indicators of stability and strength.”
Size and global activities carry up to 20% weight in the assessment of indicators, but this is contrary to the nature of insurance, since size and global operations decrease risk. The new proposals do not properly take into account the enhanced stability gained by insurers when they diversify into multiple international markets.
“The insurance business is based on the law of large numbers – the larger number of units that you insure, the lower the volatility of the portfolio,” explained Geneva Association Secretary General, John Fitzpatrick.
The report points to recent research by The Geneva Association which has identified two activities that do have the potential to create systemic risk as defined by the FSB’s criteria, namely speculative derivatives trading on non-insurance balance sheets and the mismanagement of short-term funding. It recommends that, “when collecting data for this methodology, focus should be given to companies engaged in potentially risky activities.
Mr. Braumüller’s makes it clear that the IAIS understands this and has taken the different risk profiles into account, “The potential for systemic risk within the insurance sector needs to be considered where insurers deviate from the traditional insurance business model and more particularly where they enter into non-traditional insurance or non-insurance activities.”
However, it seems that the Association feels that the considerations don’t go far enough. “The system must make the best possible use of regulatory capacity by focusing on activities that can create systemic risks and not misallocate capacity and resources on areas that do not.
We believe that traditional insurance activities should be removed from the process and that noninsurance activities be given a higher weighting than they are currently.”
During the financial crisis, the areas in the insurance sector which were directly affected were not related to the primary business of providing insurance coverage, but other non-insurance activities, like banking, credit issuance and mortgages.
The Association agreed that these speculative activities should face tighter controls and higher capital requirements, but stressed that it was important to recognise the difference between hedging against risk (which insurers do as a matter of course) and speculative investing.
The report called for greater clarity in how the IAIS calculated the weighting of the interconnectedness category relative to the banking and insurance industries. Banks in the current banking system are very interconnected, as was highlighted by the LIBOR scandal. However, in their assessment of the banking system, the FSB have assigned 20% weight to the interconnectedness of the institution. Insurers are not nearly as dependent upon each other or so closely connected, yet the FSB have inexplicably assigned a 30-40% weighting to interconnectedness for the insurance industry.
The substitutability measure is also called into question. Insurance products do not require immediate substitutability, unlike in the banking sector where a catastrophic failure in the payment processing and credit facilities of a bank has immediate and systemic impact. The global financial system is not dependent upon the services of insurers and an interruption in insurance coverage of hours or even days would not necessarily create the same kind of consequences. Governments have stepped in before to provide cover during crisis situations, and would be able to do so again without causing systemic interruption.
It is widely accepted that the current string of regulatory changes is a good thing, but the insurance industry is concerned that some of the measures being put in place are either politically motivated, or are being thrown together without due consideration because of pressure from the media, governments and general public. Unintended consequences of regulation can be quite serious, and if we take into account the fact that the FSB is not the only regulatory body pertaining to the Insurance industry, some nervousness in the industry is to be expected. EU officials and industry regulators are currently working through the details of Solvency II, another package of EU-wide regulations set to come into effect in January 2014.
According to a survey by the Geneva Association, 73% of leaders in the insurance industry have significant concerns about the effects of inappropriate regulation. Chairman of The Geneva Association and Chairman of the Board of Management at Munich Re, Dr Nikolaus von Bomhard, said, “The insurance industry plays a vital stabilising role in society and in the world’s economies both as a significant participant in financial markets and as a shock absorber for individuals and companies that suffer an insured loss. The results of this survey reveal that leaders of some of the world’s largest insurers are concerned that inappropriate systemic risk regulation will needlessly affect our ability to play that role.”
About the IAIS: The IAIS is a global standard setting body whose objectives are to promote effective and globally consistent regulation and supervision of the insurance industry in order to develop and maintain fair, safe and stable insurance markets for the benefit and protection of policyholders; and to contribute to global financial stability. Its membership includes insurance regulators and supervisors from over 190 jurisdictions in some 140 countries. More than
120 organisations and individuals representing professional associations, insurance and reinsurance companies, international financial institutions, consultants and other professionals are Observers. For more information, please visit www.iaisweb.org.
Low interest rates “an enormous stress”
The current European economic climate, created by efforts to try to stimulate economic growth and rescue an ailing banking sector, is placing the insurance industry under “enormous stress”. This according to Nikolaus von Bomhard, Chief Executive of Munich Re, one of the world’s largest investors with a portfolio of more than €200 billion (US$245 bn).
While the low interest rates in Europe are a boon for consumers and those looking for cheap credit, large investors are feeling the pinch as their ability to make money on large capital investments is being severely hampered.
The value of money over time is especially critical to insurers, since they receive most of their money up front, in the form of policy payments, and then are liable for servicing those policies later. In an environment where the interest rates are extremely low, it is very hard to remain profitable when many annuity and life insurance products guarantee returns significantly higher than the current interest rate.
The interest rate on 10 year German bonds is currently around the 1.24% mark, well below the 1.6% classified as “extreme” and “unsustainable” by Joerg Schneider, CFO at Munich Re, during an interview in May. The rate hit a record low of just 1.21% in June 2012.
von Bomhard also expressed his view that banks should be allowed to go bust and creditors be made to carry a share of the losses. This might be unavoidable, should economist Nouriel Roubini’s recent prediction prove true and the European debt crisis spirals out of control.
Fortunately, there is some good news to offset the the increased pressure resulting from low interest rates.
Global losses due to natural catastrophes have been moderate for the first six months of the year.
2012 is off to a good start as far as insuring natural disasters are concerned, with a total insured loss valued at around US$12 billion, well below the ten year average of US$19.2 billion. Worldwide, the total loss has also been well below the average of US$26 billion for the first 6 months, which is significantly lower than the ten year average of US$75.6 billion. This is according to a recent publication by Munich Re, a leading global reinsurer.
Deaths due to natural disasters in the first six months of the year are also well below the ten year average of 53000, at 3500.
2011 was marked by massive losses suffered during the disasters in Japan and New Zealand, with the total loss for the first half of 2011 stood at US$300 billion of which US$82 billion was insured.
Almost 85% of worldwide insured losses and 61% of total losses were incurred in the USA, mostly due to an earlier than usual tornado season and out of control wildfires. Since 1980, the USA has had an average of 65% and 40% respectively, but the first half of 2012 has seen near record levels of tornado activity.
The most severe single event was a line of thunderstorms that crossed several states, including Ohio and Tennessee, between the 2nd and 4th of March. More than 170 tornadoes were counted in this period, and the storm left 180,000 homes damaged, with total losses in the region of US$4 billion.
In Europe, natural disasters caused lower losses than usual, with only 10% of insured and 16% of overall global losses incurred on the continent. Winter storm Andrea, which brought heavy snowfall and winds gusting up to 200km/h caused the most damage, incurring US$700 million worth of losses, of which about US$400 million was insured. Earthquakes in the sparsely populated area of Modena in Italy caused damage to many historically important buildings.
Aside from some serious flooding in China in May, causing almost US$2.5 billion in overall losses, the Asia Pacific region has had no significant, major loss events to date.
While the mildness of 2012’s weather so far is certainly welcome news, Torsten Jeworrek, a board member at Munich Re, pointed out that, “It is in line with expectations that extreme and more moderate years will balance each other out in the course of time.”
Some success in efforts to deal with Somali piracy
There has been some significant progress made in the fight against piracy, especially off the Somali coast, with a decline of more than 50% in incidents involving Somali pirates. In the first half of 2012, there were 69 Somali-related piracy events, compared to 163 for the same period in 2011.
According to a recent report by the International Maritime Bureau (IMB), global incidents of piracy fell to 177 reported attacks in the first half of 2012, down from 266 for the same period last year. This improvement is mostly as a result of increased naval activity, including preemptive action, as well as improved security measures put in place by shipping operators and the hiring of private security contractors. “Naval actions play an essential role in frustrating the pirates. There is no alternative to their continued presence,” said IMB director Pottengal Mukundan.
While there is a marked improvement in the situation off the Horn of Africa, there were still 11 vessels and 218 crew being held by Somali pirates, some in unknown locations on the mainland.
The Gulf of Guinea, on the West coast of Africa, has seen an increase in piracy, with 32 incidents reported in the first half of the year, up from 25 in the same period in 2011.
Globally, a total of 20 vessels were hijacked worldwide, with 334 crew members taken hostage. Another 80 vessels were boarded, 25 fired upon and 52 vessels reported attempted attacks. Somali pirates still present the most serious threat and ships should continue to take measures to protect themselves.
Elsewhere in the world, attacks are mainly armed robberies, with almost 20% occurring in Indonesia, however, guns were only reported on one occasion.
Bank Danamon Indonesia has announced that, in partnership with Asuransi Jiwa Manulife Indonesia, the bank will be offering new insurance and wealth management products.
The bancassurance deal, which is set to run for ten years, is a follow up of a partnership agreement between the two companies in October 2011. The agreement was to grow bancassurance in Indonesia, and has now come into effect a little under a year later.
Speaking about the new partnership, Alan Merten, the CEO and President of Manulife Indonesia was quoted as saying: “I am very pleased that the partnership between Danamon and Manulife is now officially launched! This is another significant step Manulife is taking towards realizing our vision to provide strong, reliable, trustworthy, and forward-thinking solutions to our customer’s most significant financial decisions.”Read the rest of the Bank Danamon Indonesia Partners Up With Asuransi Jiwa Manulife Indonesia article.
The National Bank of Fujairah (NBF) and the Oman Insurance Company (OIC) have signed a lucrative strategic agreement that will pave the way for the bank to release a number of new insurance products in the near future.
The latest deal comes a month after Oman Insurance Company signed a similar agreement with another leading bank in the United Arab Emirates, Commercial Bank International. It comes as no surprise that OIC have signed two major deals that should offer its products to more customers in quick succession This is because at the beginning of the year OIC CEO, Patrcik Choffel, announced that the company would pursue a goal of offering their products to an even great number of people across the Middle East, exactly what these agreements have achieved.
Oman Insurance Company’s stature as one of the biggest and most stable insurance companies in the region was cemented after being rated ‘A’ by rating agency, AM Best and ‘BBB+’ by Standard and Poors. However, their main competitor, Gulf Insurance Company, was given two ‘A-’ ratings from both agencies, and was announced as the ‘Best Insurance Provide in the Middle East 2012′ meaning that for now at least, OIC remains the second biggest local insurer in the region.
OIC’s deal with the National Bank of Fujairah should see the bank offering customers new bancassurance general and life insurance products. According to Sharif Mohamed Rafei, the bank’s Head of Retail Banking, the products “will strengthen our [NBF] efforts to become a one-stop destination for our customers’ financial and security needs.” He went on to say that the new bancassurance products will be “convenient and competitive products to meet their [the customer's] needs.”
It’s a high profile merger in the UAE, not only because Oman Insurance a leading company in the region, but also NBF recently picked up awards for the Best Commercial Bank, Trade Finance and Treasury Management at this year’s Banker Middle East Industry Award.
The Middle East insurance sector is becoming an increasingly lucrative industry. As insurance penetration is estimated to be lower than 10 percent in the region, there is still a large segment of the local market which is not adequately being served – pointing to significant upside if OIC is able to capitalize on the existing coverage gap. A low level of penetration is part of the reason why teaming up with banks and expanding reach can be extremely beneficial for OIC and other Gulf insurers.
Speaking about the agreement, National Bank of Fuajirah’s CEO, Dane Cook, explained that the deal signified the banks desire to expand into new areas of banking products: “NBF has traditionally focused on its core strengths in corporate and commercial banking, trade finance and treasury, and we now see an opportunity to deepen our longstanding client relationships with a wider range of personal banking products.”
The insurance market in the UAE, where the deal will have the greatest impact, is expected to grow at a double digit rate from 2010 to 2015. As OIC are the biggest insurer in the country, they are expected to benefit greatly.
One area of rapid growth that will not benefit Oman Insurance Company is the huge expected increase in the number of people purchasing Takaful (Islamic Insurance) products. In the past, the UAE’s Takaful industry alone has experienced an astonishing 135% increase in growth. However, laws specifying that Takaful operators cannot also offer conventional insurance, lead OIC to opt out of offering Takaful products, as they would risk losing huge amounts of customers with conventional coverage.
Insurance Companies Mentioned
Oman Insurance Company
Oman Insurance Company was founded in 1975 and is one of the leading insurers in the Middle East. They specialize in a whole range of insurance products including life, health and small business insurance.
Gulf Insurance Company
Established in 1962, the Gulf Insurance Company is the largest insurance company in Kuwait, and one of the largest in the Middle East. GIC specialize in a variety of insurance products ranging from life and health to marine and aviation insurance.
Insurance brokerages across Europe expressed frustration towards the European Commission’s (EC) latest revision of the Insurance Mediation Directive (IMD II), and specifically the component that makes remuneration disclosure in a transaction mandatory.
While not all of the regulations introduced were negative, broking organizations will not give up pressure on the EC to modify the rules until the IMD II is officially finalized and published sometime next year.
The European Federation of Insurance and Financial Intermediaries (BIPAR), and one of its members, the British Insurance Brokers Association (BIBA), were pleased to see their lobbying efforts recognized through the incorporation of other insurance distribution methods, such as travel agents or price-comparison websites.
However, BIPAR and BIBA along with various other European brokerages are not so happy with the EC’s plans to create a “level playing field”, by requiring all brokers in the general insurance line to disclose their commissions, before the end of a 5 year transition period. They claim that these rules ignore all of the advice and recommendations from the Financial Services Authority, HM Treasury, the European Insurance and Occupationla Pension Authority (EIOPA), and all leading insurance brokers in Europe.
The mass disappointment is supported by the fact that insurance companies selling directly to customers will not be subject to the same mandatory disclosure.
Head of Compliance and Training at BIBA, Steve White, expressed that his organization is happy with a number of areas of concern the EC addressed in the IMD II. Yet, the main concern lies with the rules mandating disclosure for brokers only, and the importance of establishing a “level playing field” when comparing to insurance companies selling direct.
David Strachan, Co-head of the Deloitte Centre for Regulatory Strategy, also shared White’s skepticism about the ability of IMD II to carry out its purpose. Strachan noted that the IMD II is meant to clear up any conflicts of interest among different sales modes. However, the difference between intermediated and direct insurance sales should be stressed to customers, because remuneration varies between the two services. Consumer clarity on the issue is vital to ensuring that the IMD II is a successful in its goal.
In the meantime, the Chief Executive of BIBA, Eric Galbraith, said that his association will cooperate with BIPAR to voice their perspectives as the Council of Ministers, European parliament, and European Union co-legislators, near the final publishing processes of the document.
On the other hand, other means of insurance distribution will also be affected, to many European brokers’ satisfication. After the implementation of the IMD II, sales channels such as price-comparison websites will also be under stricter regulation, in the EC’s attempt to provide greater transparency through all methods of purchasing insurance.
Currently, the IMD focuses on intermediaries, but the IMD II will incorporate a much wider scope.
Norton Rose LLP partner David Whear said that the most promising changes revolve around the kinds of groups and organizations that the new directive will regulate, such as loss adjusters, claims managers, and price-comparison websites. This ensures that much attention will be diverted from intermediaries, which may have been unfairly monitored before.
According to the EC, the revised directive will allow customers to receive complete transparency from the seller when purchasing insurance products. It claims that the purpose of the IMD II is to enhance customer rights and protection within the insurance sector, by implementing set standards and honest advice among insurance sales. In this way, business for intermediaries across borders will not be as much of a hassle, and therefore encourage an internal insurance services market to develop.
Although the revised IMD cannot be called a complete flop, European insurance brokers are about to enter a period of significant struggle, as the looming EC regulations threaten to hurt and complicate future business.
As ING Group continues to sell off its overall Asian insurance operations in order to repay part of the USD $7 billion in bailout funds that it received from the European Union in 2008, the Dutch company is also getting ready to offload its separate ventures in India.
The news comes as no surprise to many as the sale is part of ING’s global restructuring plan. The plan entails that by 2013, ING will cut its balance sheet by approximately USD $751 billion by selling off many of its businesses outside of Europe, including those in Asia and America. Thus far, ING have been looking to sell a number of its Asian insurance businesses (not including those in India), such as those in South Korea and South East Asia, as a single unit.
A number of factors, including the fact that the firm deals with local Indian players, means that ING has decided to sell its Indian businesses separately. This means that the imminent sale of its three Indian companies will take a while longer as ING are reportedly focusing all its efforts towards getting rid of its other Asian insurance business which are valued between $6 and $7 billion US dollars.
The creation of ING Vysya Bank, one of the three ING companies, was the first merger between an Indian bank (in this case Vysya Bank) and a foreign group. ING currently holds 44% stake in ING Vysya bank, with other shareholders including Aberdeen Asset Management, Morgan Stanley and Citigroup. ING also have an investment management company in the country that is also up for grabs. The company, ING Investment Management India, has a number of interested bidders including Pramerica, and South Korean company, Mirae.
ING Life India is ING’s third company in India. Due to Indian laws that state that a foreign owner can only own 26% stake in any Indian insurance firm, ING are not the majority shareholders. It does however have management control of ING Life India. The majority share holder in the insurance company, formed in 2002, was initially GMR Industries. GMR then sold its stake to Indian battery manufacturer, Exide Industries who now hold a 50% stake in the company, making it the majority shareholder.
While the life insurance company did report increases in its premium three months in a row from January to March, at the start of the new fiscal year in April it saw its premium collection take a huge plunge and drop to Rs14.09 crore (US$4.05 million).
What is even more worrying for ING Life India is that Exide Industries, the major shareholder, is also reportedly looking to sell their stake in the venture. This was almost the case a year ago, but Exide opted to stay on. However, following the recent news of ING’s decision to sell, it seems that Exide have now followed suit. With both sides looking to sell, the future looks uncertain for the company as it will have to look for a new foreign and domestic partner or opt for a merger.
A number of insurance companies have expressed an interest in buying up ING’s 26% stake. They include insurers like Samsung Life, Manulife and Japanese company, Sumitomo. However, as none of the interested companies currently have a presence in India, before purchasing the stake they have to find an Indian partner to enter the market with.
ING Life India operates two distribution channels, Tied Agency and Alternate Channel. The Tied Agency channel has over 30,000 life insurance advisors, while the Alternate Channel contains the company’s bancassurance (BIM) partnership with banks such as ING Vysya Bank.
ING are not the only company selling its Asian operations. Struggling British firm, Aviva have also announced plans to sell its Malaysian operations as the economic crisis’ aftermath continues to affect insurance companies.
Insurance Companies Mentioned
Formed in 1991, Dutch institution, ING, is a group that specializes in a number of financial services including insurance. It currently has a presence in more than 45 countries with a client base of approximately 85 million individuals.
Malaysia, one of the world’s most populated Islamic Countries, is experiencing something of a renaissance on the insurance front. However, it’s not just any insurance products which are doing well in the country however, although the Malaysian insurance market is attracting large amounts of interest from some of the world’s largest insurance companies, but specifically Takaful Insurance which is thought to hold the key to the nation’s future development and expansion of the domestic insurance market.
According to Etiqa Insurance & Takaful, the insurance arm of Malaysia’s largest bank by assets, Malayan Banking Bhd, the Malaysian Takaful industry is expected to increase to a total value of RM 7.2 billion (US$ 2.2 billion) over the next three years. Malaysian Takaful insurance is currently valued at RM 4.2 Billion (US$ 1.3 Billion), having grown an approximate 27 percent from 2005 to 2010.
Etiqa’s Chief Commercial Officer Shahril Azuar Jimin, citing the low levels of insurance coverage and penetration rates across the Malaysian population, and specifically pointing to extremely low levels of uptake within the country’s Muslim community, was optimistic about the potential the country held for Takaful providers.
One of the key reasons why Mr. Jimin saw success for Malaysian Takaful Insurers over the next two to three years was due to ever increasingly sophisticated distribution methods. “Ten years ago, there were less than 100,000 agents for takaful, whereas conventional insurance had about 250,000,” he went on to state that Etiqa alone now has a distribution force of approximately 100,000 agents, vastly improving the company’s, and industry’s ability to improve on the currently low levels of coverage being purchased around the country.
At present, only 54 percent of Malaysians hold either a Life Insurance or Takaful Family Insurance product, with Takaful penetration standing at a slightly underwhelming 11 percent.
Mr. Jimin was speaking to reporters on the sidelines of the World Takaful Conference: Asia Leaders Summit (WTC:ALS), which opened on Wednesday June 13th in Kuala Lumpur. The conference has revealed that good times may be in store for Asian, and Global Takaful Insurers.
Global Takaful premium contributions in 2010 were up 19 percent from the previous year. While Malaysia and the rest of South East Asia may hold promise for Takaful Insurers down the road the region still lags behind the Middle East in terms of Takaful contributions, with the Gulf Cooperative Council member states holding the lion’s share of the market with premium contributions equal to US$ 5.68 billion; Asia, including Malaysia, saw total 2010 Takaful premium contributions valued at US$ 2 billion.
The largest single domestic market for Takaful products is, unsurprisingly, GCC country Saudi Arabia, with US$ 4.3 billion in Takaful contributions, the KSA represents more than 51.8 percent of the global Takaful industry.
With the ongoing emergence of previously under-developed and underserved markets in the forms of Indonesia, Bangladesh, and Pakistan, it is expected that the global Takaful Industry will post premium contributions in the region of US$ 12 billion by the end of 2012. There may, however, be a slight Takaful slowdown in some GCC nations – specifically the United Arab Emirates – where the market is mainly General Takaful Insurance products, with Family Takaful accounting for just five percent of the total volume in certain areas.
In fact, there was a general GCC Takaful slowdown in 2010 which went largely unnoticed. Growth in the GCC Takaful market was only 16 percent in 2010, significantly down from the annual growth rate of 41 percent recorded from 2005 – 2009. While this may be due to saturation of the market in certain GCC countries, and an already high uptake, some analysts have cited the installation of compulsory Takaful Medical Cover in Abu Dhabi and Dubai as possibly causing an artificial inflation in the GCC’s overall Takaful growth and are of the belief that current growth levels are more realistic; reflecting the actual market outside of government regulations and legislation.
However, even with the slowdown of growth in 2010, Takaful insurers remain optimistic but cautious. Mr. Jimin of Etiqa was bullish on the 5 year growth rate of Family Takaful products, expecting around 20 percent; which would see Family Takaful insurance outpace both General Takaful and Conventional life insurance in Malaysia. Mr. Jimin also highlighted the fact that there was a massive amount of expansion potential in the Malaysian Muslim Community stating that “The immediate market [for family Takaful], which is the Muslim community, is very much under-insured. We’re also seeing more acceptance from the non-Muslim market because of the equitable aspect that Takaful offers.” Non-Muslim uptake of General Takaful Insurance products was close to 40 percent in the country, with non-Muslim Family Takaful lagging at 25 percent uptake.
Although, it should be noted that it is not all roses and sunshine for Takaful. As is true in any industry, success breeds competition and it is this competition, in addition to a shortage of expertise in Takaful and ever evolving regulations for the industry which have been identified as the major risks for the market around the world. One WTC:ALS attendee was critical of new industry providers stating that the younger organizations attempting to crack the market and compete with more established organizations may not be making use of sustainable business strategies. Aggressive pricing is seen as a key factor putting pressure on overall Takaful profitability, and while there has been a shift towards tying down the tactics which will translate market potential into profitable growth, the fact that there is increasing competition on the back of the attractiveness of the product does mean that there are some minor doubts about the industry’s ability to continue on its current growth track.
As Europe remains to be a place of economic uncertainty, Asia continues to provide Health insurers opportunities for investment and expansion.
Asia is home to the largest number of high net worth individuals and with 3.3 million people now owning liquid assets worth at least USD $1 million, the continent has overtaken Europe and is second only to North America in terms of wealth.
Several of the less developed countries in Asia in particular though, are showing significant amounts of promise and could be the escape route established international companies need to avoid the financial quagmire in much of Europe and the USA.
A survey carried out by economic consulting firm, Nathan India, has indicated that one in 10 people living in India could end up buying health insurance products by 2015, inevitably increasing the existing 2 percent of the entire population to 10 percent.
As greater numbers of the country’s population are becoming increasingly aware about health insurance and the benefits it can bring, it is predicted that the industry will grow from USD $1.6 billion to $7.6 billion by 2015; the Indian health insurance industry witnessed a growth of 36.9 percent in 2011.
Those considered most likely to purchase health insurance products are those who are married, have a graduate degree and have a steady income. As India continues to bloom in business, these sectors of the population will surely continue to grow alongside the nation’s GDP.
The Indian health insurance industry has already been experiencing a steady growth over the past 6 years and so far, growth has mainly been concentrated within the public sector of the market where companies such as New India, United India Insurance, National Insurance and Oriental Insurance have all played significant roles.
Improvements in Information Technology have played their part too, and more companies have developed e-platforms which have enabled individuals to understand more about insurance coverage and compare different plans and policies.
Some international insurance giants have honed in on the vast potential in the Indian market and companies such as Star Health, Apollo Munich and Max Bupa already have a strong foothold in the private sector and are witnessing a growth in the number of Indian hospitals registering with them.
In the meantime however, the Joint venture of ICICI Lombard between India’s ICICI Bank Limited and Canadian Fairfax Financial Holdings Limited still hold the title of largest providers of general insurance in the private sector.
Sri Lanka has experienced similar growth patterns in the insurance industry recently and also shows great promise for growth.
According to the Insurance Board of Sri Lanka (IBSL), the gross written premium of the country’s insurance sector rose 18.5 percent last year to USD $464.4 million dollars with general and life insurance sectors recording the most substantial growth.
The IBSL regulates 21 insurance companies which are separated into the combined general and life insurance, and life insurance. The total assets of these companies was USD 2.3 billion last year and this is a marked improvement from the USD $1.7 billion they witnessed in 2010.
May 2009 marked the end of the 26-year armed conflict in Sri Lanka, and since then the nation has been on the right path to becoming a middle income country. To ensure it continues on in this direction, Sri Lanka is focusing on long-term solutions and is looking towards international markets more frequently.
Several international insurance names have sought out such investment opportunities in Sri Lanka and even though British Aviva has had to put its share in Sri Lankan based Eagle Insurance on the auction block, other insurance giants such as Manulife financial and Prudential are likely to be among potential bidders and could continue to inject the industry with the financial boost it requires.
The Asian market in general, whilst offering great promise, is a tricky arena to enter. One reason is as previously mentioned; very wealthy individuals live alongside those who are not so fortunate. As a result, it is a challenge for insurance companies to reach all audiences and experience sufficient growth which could explain why some international companies are less inclined to experiment with Asia and concentrate on maintaining their existing performance levels instead.
When trying to target those in the higher end of the personal wealth scale though, many local insurers in Asia struggle as they do not appear to have the underwriting experience and expertise required when dealing with the higher level claims that are expected by individuals with a large net worth.
This is where acquisitions and mergers with global companies are much appreciated and where great opportunities lie for foreign investors.
It has taken a few years to really get going, but the market for insurance products targeted at high net worth individuals is certainly growing and some life insurers are flagging this area in particular as their focus area for significant growth.
AXA in particular hopes to develop substantially in this area after its acquisition of HSBC’s general insurance business in both Hong Kong and Singapore while AIA has already proved it has a good grip on the high end market situation and is moving in a positive direction.
Asia appears to be continuously developing at both ends of the wealth spectrum, more so than other continents it would seem and it therefore remains to offer great opportunities to both local and international insurance companies alike who are looking to experience expansion and significant growth levels.