Globalsurance International Health Insurance - Expat Medical insurance products for you and your family no matter where in the world you live.

Microinsurance in China Developing

China Pacific Life Insurance, the nation’s fourth-largest life insurance company, received approval from the China Insurance Regulatory Commission (CIRC) this week to expand their rural individual life microinsurance pilot program to seven more Chinese provinces. China’s insurance regulator is striving to develop the country’s micro insurance market, particularly in rural areas, in a bid to help Mainland farmers and low-income families better manage risks, protect their savings, and expand national insurance coverage in 2012.

A special report commissioned by the Asian Development Bank (ADB) in 2006 found that household vulnerability was the leading cause of new poverty in Asia. Amongst Chinese working poor, the two leading risk factors were serious illness/accident to family members, and investment failures due to price volatility or natural disasters. Insurance could of course play a key role in mitigating these risks, but standard coverage and savings tools remain out of reach for millions of poor and disadvantaged households in China, and indeed around the world. Mircroinsurance has been developed to rectify this problem.

Microinsurance refers to insurance products that are specifically tailored to provide basic, inexpensive cover for specific low-income populations that require protection for risks including healthcare, crop, catastrophe, life and non-life products. Premiums on microinsurance policies are kept at a low level, and often pooled across entire families or even villages, with the purpose of making the products more affordable and attractive to these first time policyholders. Microinsurance thus provides security options for populations that need some insurance protection against financial ruin but until now have been unable, or even aware of, the ability to afford a policy. For insurance companies meanwhile, microinsurance presents a key commercial opportunity due to the high volume of available policyholders combined with low cost margins. According to a recent Swiss Re sigma study, the global microinsurance market is now estimated to be worth over US$40 billion. In China alone, there are at least 200 million to 400 million potential clients. The Asia Pacific region overall is one of the fastest growing regions for microinsurance development, with Africa and Latin America also having emerging markets.

According to a CIRC filing, China Pacific Life will now be allowed to expand their rural individual life microinsurance programs into the provinces of Hunan, Inner Mongolia, Jiangsu, Ningxia, Qinghai, Xinjiang and Zhejiang. Prior to this accord, China Pacific Life was only cleared to provide rural individual life microinsurance, including accident injury protection and fixed-term group life insurance, in certain areas within the provinces of Guangxi, Hubei, Hunan, and Sichuan. Starting next quarter, the Shanghai-based insurer will also be given greater control over their own business model in certain districts, which will likely lead to them adjusting their rates downward to match domestic lower-income conditions. China Pacific Life will be required to work with local insurance regulators and to report back to the CIRC regularly on the progress of the life mircoinsurance scheme.

This is not China Pacific’s first venture into the Chinese microinsurance trade. The insurer’s non-life affiliate, China Pacific Property Insurance, received the necessary CIRC approval last October to participate in its own trial program for rural microinsurance. The China Pacific Insurance Group is cumulatively coming off a good year, reporting total premium income of CNY 143.8 billion (US$ 22.67 billion) for 2011, a 12 percent annual increase. China Pacific Life reported premium income CNY 87.9 billion (US$ 13.94 billion) in November 2011, up 7.8 percent from CNY 81.52 billion (US$12.9 billion) in October, while the insurer’s property and casualty business reported CNY 55.9 billion (US$ 8.81 billion) for 2011, noted the regulator.

China has over 700 million people in rural areas, making it a huge market for the micro insurance business. In a statement outlining its work for 2012, the CIRC intend to further develop the domestic rural insurance and catastrophe insurance markets in 2012. Going forward, further growth of the microinsurance sector hinges on better regulations and more innovation in distribution and communications with potential customers.

The Chinese government began testing life microinsurance schemes in rural areas in August 2008. China Life Insurance Co, the mainland’s largest insurance firm, was the first participant in the trial scheme, providing basic cover and savings products to rural farmers and low-income urban dwellers across nine Chinese provinces. According to the CIRC, the simple life insurance products that China Life developed for the pilot scheme provided an eight-time refund on annual premiums of CNY100 for farmers to cover against terminal accidents. In the pilot scheme’s first year of operation, China Life covered 1.2 million farmers with insurance income amounting to around CNY1.12 billion (US$180 million) in total. By the end of 2009, and now with more insurance companies in tow, the trial rural life microinsurance program generated premiums of more than CNY230 million, underwriting more than CNY136.4 billion (US$21.6 billion) in risks 8.71 million people. In 2010, the rural micro insurance program was expanded by the CIRC to cover 20 million people across 24 provincial regions. This is of course still a small number relative to the country’s overall population (and roughly equates 4 percent of the rural population), and the Chinese government recognizes the need to increase its penetration further. Microinsurance, with it’s lower premiums, easier-to-understand policies, and simplified claims procedures, is regarded as a particularly important tool in growing the rural insurance market. Besides local governments and insurance companies, multinational insurers are also showing growing interest in this potentially lucrative market.

Insurance Companies Mentioned

China Life Insurance

China Life Insurance Company Limited (China Life) is a People’s Republic of China-based life insurance company. The products and services include individual life insurance, group life insurance, accident and health insurance. The Company operates in four business segments: individual life insurance business, group life insurance business, short-term insurance business, and corporate and other business.

China Pacific Insurance

China Pacific Insurance (Group) Co., Ltd. (CPIC) is a insurance company providing, through its subsidiaries, a range of life and property and insurance services and pension products to individual and corporate customers throughout the country. CPIC was founded on May 13, 1991, and is headquartered in Shanghai. The company was listed in Shanghai Stock Exchange on Dec. 25, 2007, with the stock code of 601601 and the stock name of “China Pacific”. The Company was listed in the Stock Exchange of Hong Kong Limited on Dec. 23, 2009, with the stock code “02601” and the stock name of “CPIC”.

Globalsurance International Health Insurance - Expat Medical insurance products for you and your family no matter where in the world you live.

Hong Kong Plotting New Policyholder Protection Fund

Big changes could soon be underway in Asia’s premier insurance centre. The Hong Kong government announced this week that they are planning to implement a new national insurance fund that would protect policyholders from insolvent insurers after reviewing the results of a three-month long public consultation.

Hong Kong insurance authorities surveyed public and stakeholder opinions on the proposed establishment of an insurance policyholders’ protection fund (PPF) from March to June 2011. Respondents were quizzed on four key areas of the proposed scheme – coverage, level of compensation, funding models and governance arrangements. Taking into account the comments received, the final proposals were collated and published on the government website, and plans are now underway to introduce the PPF bill into the Legislative Council during the 2012-13 legislative session. If approved, the fund would not likely be established until fiscal 2013-14 at the earliest.

Hong Kong’s Secretary for Financial Services and the Treasury, Professor KC Chan, said in a statement that the proposed insurance fund would enhance “the stability and competitiveness” of the Hong Kong insurance industry, while minimizing the risks of moral hazard. Chan added that “we are pleased to note that there is support from the general public and industry for the establishment of a PPF and most of the key elements of the consultation proposals.”

Under these new proposals, all authorized Hong Kong insurance companies would be required to participate in the PPF, which will in turn be comprised of separate life and non-life schemes. The PPF will be run by an independent board, with an initial target size of around HK$1.3 billion (US$168 million), that will focus on covering individual policyholders and building owner’s corporations in Hong Kong. If an insurer becomes insolvent, the PPF will work to transfer all existing life, accident and health insurance policies with guaranteed renewability to a replacement Hong Kong insurer. For non-life policies, the fund will provide full compensation for the entire coverage period until expiry. Ceding to industry feedback however, the PPF Board will have the power to grant exceptions to companies who can provide a similar protection to Hong Kong-based policyholders via an existing compensation scheme overseas.

The government has also considered adding local small and medium-size enterprises (SMEs) to the list of potentially insured entities under the PPF, identifying that they usually have less resources available to assess the insurer solvency and are less capable of protecting their own interests. SME policyholders may also soon be allowed to specifically insure their exports for places and buyers of their choice under certain circumstances, and could also be offered various premium discounts through a separate government initiative.

Abiding by the consultation proposals, the Hong Kong government has set the compensation limit for each insurer at HK$1 million (US$129,000). Industry analysts observed that any further increase in the compensation limit would merely lead to a surge in levy rates without necessarily contributing any notable enhancements in terms of policyholder protection. The government noted as well that the proposed compensation limit, as is, should be able to meet 90 to 100 percent of claims generated from in force life policies, as well as be able to fully cover the claims of around 96 percent of non-life policies. Once the fund is established, policyholder compensation will be 100 percent for the first HK$100,000 (US$12,900) of any claim, plus 80 percent of the balance up to the limit.

The PPF fund will incorporate a progressive funding mechanism that charges a moderate initial levy on participants followed by a “stepped-up” levy once any insurer becomes insolvent and pay-outs are merited. The initial levy rates of the fund will be 0.07 percent on applicable premiums and will be collected from Hong Kong-based insurers directly. According to the government proposal document, the initial target fund size for the life insurance scheme will be HK$1.2 billion (US$150 million), with HK$75 million (US$9.67 million) allocated for the non-life insurance scheme. Both funds are expected to be achieving their respective fundraising goals within the first 15 years of service. Once national insurance funds are in force, the Hong Kong government claimed they would regularly meet with local insurance industry professionals, using PPF data to review and adjust levy rates as well as the fund’s overall size accordingly. It is in the scheme’s long term interest to strike a balance between enhancing protection for policyholders and minimising the additional burden placed on the Hong Kong insurance industry.

The overall goal of the PPF is to provide a safety net for Hong Kong policyholders when an insurer becomes insolvent. Hong Kong regulators have outlined quite an ambitious set of reforms for the city-state’s financial sector. The PPF move follows measures introduced last month to liberalize yuan capital requirements for local banks, as well as the planned overhaul of the country’s mandatory provident fund scheme (MPF), which will allow local employees to choose the MPF provider they want to invest with. Currently, employees in Hong Kong contribute 5 percent of their salary, capped at HK$1,000(US$130) per month, into their MPF retirement account. This contribution is then matched by employers, who have had sole power to choose the MPF provider. This will change in November 2012, when the MPF Schemes Authority enacts the Employee Choice Accounts and puts the choice of MPF provider in the hands of employees. The government hopes the scheme will put performance and fee pressure back on MPF providers, and foster a whole new financial market to stimulate the local economy. This could in turn put downward pressure on Hong Kong medical insurance rates and other financial products as well.

Life, Automobile and Health insurance continues to be an integral part of the Hong Kong economy. Despite volatile equity markets, Hong Kong’s insurers managed to keep pace with the double-digit growth rates seen in several Asia-Pacific markets last year. According to the latest figures made available on the Office of the Commissioner of Insurance (OCI) website, the Hong Kong insurance industry recorded HK$172.8 billion (US$22.2 billion) in gross written premium for the first three quarters of 2011, a 12.6 percent annual growth rate, with underwriting profits rising from HK$1.7 billion (US$220 million) to HK$2.1 billion (US$270 million) in that period as well. While these substantial growth rates may not continue during a tepid 2012, Hong Kong’s insurance companies are sure to benefit from the business potential for insurance made available across Asia-Pacific markets and Mainland China in particular.

Organizations Mentioned

OCI

The Hong Kong Office of the Commissioner of Insurance is a government body that works to represent the interests of policy holders and to ensure the continued stability of the insurance industry in Hong Kong. The OCI was established in June 1990.

Globalsurance International Health Insurance - Expat Medical insurance products for you and your family no matter where in the world you live.

ABI Reveal Gaps in UK Consumer Insurance Knowledge

The United Kingdom is one of the world’s leading insurance markets, but how well do their own citizens really understand the intricacies of the trade? A new study released this week by the Association of British Insurers (ABI) finds out which protection products have proven to be the hardest to understand by the general public, how this affects the savings culture, and what perhaps UK insurers can do to address these shortcomings.

The ABI conducts a survey of average UK consumer behaviour and insurance product knowledge ever quarter, with each poll based on a representative sample of at least 2,500 unique respondents. Statistics for the fourth quarter 2011 were released this past week and offer an interesting insight into how consumer attitudes towards savings and insurance have changed over the past year as well as what challenges and opportunities face the UK insurance industry going into 2012.

The ABI found that general savings behaviour in the UK has continued to adapt to the country’s ongoing economic malaise. With living standards under increased pressure and short-term prospects relatively dim, an increasing number of survey respondents now recognize the need to save. When prompted by the ABI, 57 percent of survey respondents classified themselves as a ‘saver’, while 64 percent of those polled admitted that the need to save had increased over the past 12 months and 81 percent indicated they would like to save more each month. Of those savers, the ABI noted that bank savings accounts (66 percent), insured savings accounts (64 percent) and pension plans (32 percent) remain the most popular savings tools used.

Despite this apparent interest in financial planning however, when asked whether the benefits of saving in the UK had changed over the last 12 months, 64 percent of respondents claimed that the benefits had in fact gone down during 2011. The ABI’s findings were reinforced by the fact that 28 percent of respondents reported having no disposable income at the end of the month to save, while 48 percent admitted to having less than £100 available. Looking forward, survey participants were asked how they might vary their non-pension savings behaviour in the next year; 47 percent believed their level of savings would not likely change, 23 percent said they would reduce their level of saving, while the remaining 21 percent indicated that they would increase the amount they save. The majority of respondents overall felt that having more disposable income, better returns on saving and increased government pension stimulus would encourage them to save more, with 67 percent, 49 percent, and 21 percent of respondents respectively. The ABI noted that given the country’s precarious economic situation, saving for the future, and in particular planning for retirement, will remain a very important issue for Britons going forward. Nearly half of all respondents admitted that they were not saving or under-saving for their retirement at present.

A key factor contributing to the UK’s poor savings preparation has been the general public’s lack of knowledge about mainstream financial services products. The ABI asked the q4 2011 survey participants to rate a variety of insurance and savings products on a scale of 1 to 10, both in terms of how well they understood how the products work, and how confident they were in purchasing and using said products when they needed to. Private insurance, in particular, confuses the majority of consumers. According to the ABI study, payment protection insurance (PPI), critical illness (CI) cover, and mortgage payment protection insurance ranked the lowest in terms of general understanding. Amongst the survey’s 2,500 respondents, 52 percent rated their understanding of PPI at five out of ten or below, with 36 percent rating similarly on knowledge of CI policies. Private medical insurance (PMI) and life insurance fared a little better with around half of those polled (52 and 48 percent respectively) describing the products as very well understood. It is perhaps no coincidence then that these products were amongst the least owned by survey participants. The most well understood financial products overall were savings and loans, with 67 per cent and 62 percent of respondents scoring them between seven to ten in terms of understanding. Amongst insurance lines, automobile products were the most easily understood in the UK.

Respondents were then also asked how difficult they find it on average to compare the benefits and features of each type of financial or insurance product. On this question, PPI and CI policies once again finished towards the bottom, with 55 and 45 percent of respondents indicating considerable difficulty in judging these products’ merits versus competitors. Pensions and annuities followed suit with 45 percent of respondents rating their ability to compare these products at five out of ten or below. Private health and life insurance also suffered in terms of product comparability, with around a third of respondents claiming difficulty while shopping for policies. Automobile insurance once again finished towards the top of average consumer understanding. Overall however, the ABI observed that the UK consumer’s base understanding of financial and insurance products surpasses their ability to shop for them in confidence.

The ABI survey tracked several other common misconceptions UK consumers were having in relation to insurance and financial service products. In travel insurance, the study found several instances wherein respondents misunderstood basic tenets of policies. When asked what situations were covered by a standard travel insurance policy, a third of respondents believed exotic claims like airline failure delay and sports injuries would be covered. While additional waivers can certainly be purchased for these risks, one should not expect to claim them retroactively. Meanwhile, of the scenarios that are actually covered by a standard travel insurance policy, the least selected option was ‘loss of earnings if injury/illness delays return’ with 24 percent of respondents. The ABI noted that those that did not select this option could be at risk of not claiming for this scenario should it occur. In addition, respondents were asked what scenarios should be covered by a standard policy, with airline failure delay (68 percent response) and cover for pre-existing medical conditions (54 percent) proving the most popular. Expatriate medical insurers take note.

In motor insurance, a field fraught with heavy claims and soaring premiums, respondents were asked what the industry could do to drive costs down on both sides. ‘More responsible driving behaviour’ and ‘improved car security’ were the most popular selections. Following these responses, the next highest-rated categories were ‘reduction in lawyer fees’ with 65 percent of respondents rating this at 7 or above out of 10, and better whiplash prevention mechanisms (a key contributor to increasing premiums), which was rated at 7 or above by 57 percent of respondents.

British consumers clearly find protection amongst the hardest products to understand and this affects their ability to save intelligently and prepare for their future. The ABI’s latest survey should serve as a warning to the UK insurance industry about its difficulties in relating to consumers. Simplifying product terminology and further adjusting to the UK’s economic reality may prove to be necessary steps for British insurers if they wish to thrive and attract more clients in 2012 and beyond.

Groups Mentioned

Association of British Insurers

The ABI (Association of British Insurers) represents the collective interests of the UK’s insurance industry. The Association speaks out on issues of common interest; helps to inform and participate in debates on public policy issues; and also acts as an advocate for high standards of customer service in the insurance industry. Every day, ABI members pay out an estimated £155 million in benefits to pensioners and around £58 million in general insurance claims.

Globalsurance International Health Insurance - Expat Medical insurance products for you and your family no matter where in the world you live.

S&P Negative on Euro Insurers

Ratings agency Standard & Poor’s (S&P) has issued a series of cautions to major European insurers this week, warning them that ongoing exposure to the euro debt crisis has negatively affected their long term credit rating outlooks. The move follows S&P’s decision to lower the ratings on nine eurozone member countries last month, and adds to the woes facing the continent’s beleaguered insurance industry heading into 2012.

Standard and Poor’s decision to place some of the Europe’s top insurance companies on negative watch is but the latest in a series of actions made by worldwide rating agencies over the past few months. Ratings agencies have become increasingly concerned about the future of the euro zone, owing to the massive debt and credit problems facing several member countries – notably Greece, Portugal, Ireland, Spain, and now Italy. The continent’s sovereign debt problems have reached true crisis proportions in the past year, forcing drastic action from heads of state and comm-erce alike.

In separate company filings, S&P announced that the long-term counterparty credit and insurer financial strength ratings for France-based life insurer CNP Assurances and Italian insurance giant Assicurazioni Generali had both been downgraded one level to ‘A+’ and ‘A’ respectively. The agency also lowered the ratings on Generali’s various continental subsidiaries. Ceska Pojistovna was lowered to ‘A-‘ from ‘A’, with Generali Holding Vienna and Generali Rueckversicherung both moving to ‘BBB+’ from ‘A-‘. Ireland-domiciled insurance groups Allianz and AXA’s ‘AA’ ratings meanwhile were affirmed but have had their outlook now revised to negative. Another Irish based firm, Aviva, also had their credit rating affirmed at ‘AA-’ with a negative outlook. All ratings were removed by S&P from credit watch, where they had been placed with negative implications since December 9, 2011.

Fears about the state of the eurozone economy prompted the ratings agency’s cautionary moves. S&P attributed most of the downgrades and negative outlooks to ongoing market adversity in Europe, noting that the financial market developments at the end of 2011 have continued to put pressure on insurance companies’ ability to maintain adequate capital levels. The agency said, “financial market developments and increased credit risk in the eurozone (in particular the recent downgrade of some eurozone sovereign issuers and the consequent downgrades of financial institutions) were key drivers in the downgrades.”

S&P’s decision to downgrade Generali and related core entities to ‘A’ from ‘A+’ was based on the group’s reduced capital adequacy, which deteriorated from ‘strong’ to ‘good’ in the second half of 2011 according to the ratings agency. The Italian insurance group, left heavily exposed to its home country’s sovereign debt issues, still boasts “very strong earnings generation potential based on solid business fundamentals” but now faces increased risk capital requirements due to recent downgrades of eurozone sovereign issuers and their economies. S&P further noted that current volatile market conditions may weaken Generali’s business and financial flexibility. “Generali’s strong name recognition allowed it to refinance successfully all of its €3.5bn debt that matured over the past three years,” S&P stated, “However, the group still has a significant amount (€2.25bn) of senior debt to refinance by 2014. Meanwhile, financial market conditions have reduced the availability and increased the cost of financing sources.” Going forward, S&P suggest that Generali’s sound business practices and operating earnings generation could improve this year and work to offset the insurer’s weakened capitalisation and constrained financial position if they are able to improve their product distribution and profitability while maintaining strict underwriting discipline.

Regarding CNP in particular, S&P noted that financial market volatility had likely damaged the French life insurer’s ability to maintain a strong capital position for at least the next two years, adding that “challenging economic and financial conditions could further prevent CNP from restoring its capital adequacy, despite strategic action.” While the company has improved its business mix and will likely maintain its stable leadership position in France’s life market going forward, S&P believe that persistently low interest rates will weigh on financial income and that sales of unit-linked products will suffer due to stock market volatility. In addition to this, high credit spreads and volatile equity markets all worked to limit CNP’s earnings generation capacity last year. Despite an expected increase in contribution from non-European business lines, S&P do not anticipate these financial problems to subside for CNP in 2012. “This will further delay the restoration of the company’s capital base, in our opinion, despite management actions to strengthen the company’s solvency position,” S&P stated.

Aviva’s negative outlook meanwhile reflects S&P’s concern that ongoing economic turmoil in Europe, combined with lethargic equity markets, could weaken the insurer’s earnings generation capacity over the next few years. This could, in turn, further constrain the company’s financial flexibility and ability to compete in the international insurance industry. While Aviva’s earnings have remained strong, S&P notes that the company’s exposure to the economic slowdown in the eurozone and across Europe may hamper growth. The group’s life insurance business has already been affected, with life sales in Europe down 18 percent on the year. S&P further observed that if these risks cause Aviva’s earnings to decline significantly relative to its expectations it could lower the company’s AA- rating further over the next 12 to 24 months. This situation could also occur if Aviva’s capital adequacy falls below the threshold S&P marks for A rated insurers, or if the Ireland-based company’s financial leverage consistently exceeds 30 percent. Furthermore, S&P admitted they could revise Aviva’s outlook upwards to stable if the group meets their earnings expectations or if their capital position improves, which would “provid[e] a greater buffer for any earnings weakness,” the ratings agency said.

On Allianz’s credit rating update, S&P noted as well that ongoing problems in the eurozone had “weakened Allianz group’s risk-adjusted capital adequacy to a level close to our minimum expectations for the current rating.” These risks could of course be exacerbated further pending future eurozone reforms and challenging stock market conditions. S&P also admitted that they might lower Allianz’s financial strength ratings over the next year or two if their capital adequacy deteriorates further or if their earnings generation forecasts fall to a level that the rating agency considers below the A rating range.

For AXA, S&P reiterated the worry that “current investment market conditions and economic outlook may constrain Axa’s abilities restore its capital adequacy.” The French insurer was assigned a negative outlook and could also see its ratings lowered over the next 12 to 24 months if they are unable to reach S&P’s earnings generation and retention threshold. However, S&P noted that AXA’s revenue and earnings diversification, management actions, and risk management abilities will help strengthen the French insurer’s capital adequacy in 2012 and 2013.

Europe’s insurance markets face a multitude of problems going forward. The continent’s sovereign debt crisis has occurred in conjunction with a soft pricing market and stubbornly low interest rates. These conjoined factors keep rates low and puts downward pressure on insurer profitability across most business lines. Attempts to increase premium levels have been met with resistance in a weak economic climate, with consumers unwilling to pay higher rates for insurance products, if indeed they can afford insurance at all. Added to all this is upcoming Solvency II regulations, which will require EU-based firms to taper their business ambitions and set aside greater capital reserves after the guidelines come into effect in 2015.

Companies Mentioned

S&P

Standard & Poor’s (S&P) is a branch of publishing house McGraw-Hill. Now operating out of 20 countries, S&P provides the investment community with independent credit ratings on important financial instruments such as stocks, municipal bonds, corporate bonds and mutual funds. In addition to its risk management, investment research and credit rating services, Standard & Poor’s is known for its indexes, in particular the S&P 500 index.

Assicurazioni Generali

The Generali Group is a leader in global insurance and financial products market. Assicurazioni Generali, founded in 1831 in Trieste, is the Group’s Parent and principal operating Company. In recent years, Generali has made a significant return to 14 European markets and has set up offices in the principal markets of the Far East, including China and India.

CNP Assurances

CNP is the leading personal insurer in France, with operations in the rest of Europe and in South America. CNP focuses on pensions, personal risk insurance and savings plans in the personal insurance market. They currently have over 22 million policyholders, 14 million of which are in France.

Allianz

Allianz Group is one of the leading global services providers in insurance and asset management. With approximately 153,000 employees worldwide, the Allianz Group serves approximately 75 million customers in about 70 countries. On the insurance side, Allianz is the market leader in the German market and has a strong international presence.

Aviva

Aviva is the fourth largest insurance company in Europe, with more than 300 years of experience in the global insurance industry, Aviva sell a broad range of insurance products including motor and property insurance, protection and health insurance, business insurance, life insurance, pensions and more.

AXA

Headquartered in Paris, the AXA Group companies are engaged in life insurance, health insurance and asset management services among others. AXA’s operations are diverse geographically, with major operations in Europe, North America and the Asia-Pacific area.

Globalsurance International Health Insurance - Expat Medical insurance products for you and your family no matter where in the world you live.

India’s Life Insurance Market Slowing Down

India’s life insurance industry, once one the strongest performing sectors in the country, has seen its growth prospects curtailed in the past year due to regulatory restrictions, competition, and limited investor activity, according to a new report.

New data released this week by the Insurance Regulatory and Development Authority (IRDA) reveals that new business premium income for India’s 24 active life insurance companies fell by a considerable 17 percent to INR719.53 billion (US$14.49 billion) in the first nine months of the 2011-2012 fiscal year. Excluding sales of group policies, the drop would be even more severe at 33 percent to INR391.3 billion (US$7.8 billion), down from INR866.9 billion (US$17.46 billion) a year prior. The data indicated that there had been a fall in the overall number of life policies sold over the past year. While the life insurance industry sold 30.68 million policies in FY2010-11, it has only been able to sell 27.24 million so far this fiscal year, an 11.21 percent decline. The rate of increase in renewal premium income also dropped from 10 percent to 4 percent this year.

India’s private life insurance companies have largely born the brunt of this decline in premium volume. According to the IRDA statistics, the number of new life policies issued by private sector insurers has fallen by almost 30 percent over the past three quarters, from 7.9 million issued in 2010 to 5.6 million this year. This has occurred while the number of sales by India’s largest public sector life insurer, Life Insurance Corporation (LIC) of India, dropped by a more modest 4.6 percent, to 21.67 million new policies this fiscal year. During the April-December reporting period, the IRDA noted that LIC’s premium collection had fallen by 15.86 percent, while the private sector cumulatively saw their premiums drop 20.34 percent. While LIC reported INR520.5 billion (US$10.48 billion) in new written premiums, private insurers only collected INR199 billion (US$4 billion). Almost every insurance company in top 20 registered a drop in premium income, with the larger private insurers like SBI Life and ICICI Prudential reporting a decline of 19 percent and 33 percent, respectively. According to the IRDA data, the only private sector insurer to register a marked increase in income over the past fiscal year has been Metlife, a relatively new market entrant.

Indian insurance market analysts have blamed this industry-wide drop in premium income on a host of factors, including the continued absence of adequate pension products in the life market, investor indifference on once popular unit-linked insurance products, volatile market conditions, and delays on necessary product and distribution innovation. India’s life insurance sector has seen numerous regulatory developments over the past few years, not all of them welcome by market participants. The IRDA’s recent rulings on charges and agent productivity have made underwriting profitability and distribution even bigger challenges for life insurance companies going forward.

New regulations that restructured unit-linked pension products in the third quarter of 2010 have certainly impacted the life sector in a negative way. In November 2010, the IRDA unveiled new guidelines for unit-linked pension products offered by life insurers, which governed what kind of guaranteed-returns they must provide to policyholders. This caused quite a commotion in the life insurance market, with insurers arguing that they wouldn’t be able to provide such products as there are not enough long-term fixed instruments with adequate maturity available to match the tenure of Indian pension plans. After much furor, the IRDA relented and revised their norms in November 2011. The new guidelines allowed life insurers to set their own minimum guarantees on pension products but also mandated that these rates be applied irrespective of when the policyholder chose to surrender his policy. As a result, pension policies that conformed to the old norms had to be discontinued by December 31, and with no new pension products yet approved the IRDA, there is now a tremendous vacuum in the market with no pension products on offer from any Indian life insurer.

As the IRDA imposed their stiff norms on unit-linked policies, the life insurance industry moved towards conventional products. Conventional policies, such as money back or traditional pension policies, are different from unit-linked insurance policies as they are not linked to equity market behavior, with investments guided by regulations not annuities. The profitability on these single premium products is however much lower for companies, as it is a one-time sale and the insurer does not earn premium on a regular basis. This has forced companies to slow down their expansion strategies and work with thinner margins. Unit-linked pension products (Ulips), which accounted for over 30 percent of the life insurance industry’s premium income in FY2010, now amount to little over 2.6 percent of life insurer bottom lines. Given these regulatory issues, ongoing global economic volatility and inflationary pressures, sales of unit-linked policies are not expected to pick up in the short term. Overall, analysts expect fewer Ulip products to sell as people look for more concrete guarantees during these tough economic times after seeing the net asset value of their investment decline in the past year.

While Indian life insurance companies may battle with regulatory and profitability issues in the short term, the longer term forecast for their market of course remains quite bright. According to a recent Bricdata report, India will likely become the third-largest life insurance market in the world by 2015, behind only their fellow Asia-Pacific rivals China and Japan. At present, India is the 12th largest life insurance market in world and 4th in Asia.

According to Bricdata, India’s population growth and low insurance penetration rate combined with the rising awareness of the need for sufficient protection and savings services, especially amongst the younger generation, will be the key growth factors for the domestic insurance industry going forward. Furthermore, India’s domestic life insurance companies could look to make a major mark on the international insurance industry if they are able to improve their business models and capitalize on the tremendous potential available in their perhaps lucrative home market.

Globalsurance International Health Insurance - Expat Medical insurance products for you and your family no matter where in the world you live.

Fitch Assess South Africa’s Insurance Industry

Two new research documents released this week by Fitch Ratings analyzed the state of the South African insurance market in 2011 and what challenges and opportunity lie ahead. Overall the global credit ratings agency found that while the business environment in South Africa remains quite challenging at present, both the life and non-life insurance industries have proved to be widely resilient so far and will continue to develop going forward.

While South Africa has certainly been less affected by the 2008 global financial crisis than many other developed countries, the persistent financial market volatility and tough economic conditions that followed have of course had an adverse impact on the domestic insurance industry’s performance, driving down profitability and sales growth across most lines. Despite the South African market showing signs of recovery in 2010 and 2011, with improved local equity markets and consistent economic growth, it remains challenging for insurers to turn a profit. Overall, Fitch expects earnings for insurers to remain under pressure in the near term in view of the difficult and volatile South African and global investment market conditions and continued pressure on disposable income in South Africa. “Although the local economy showed a gradual recovery, the investment markets were volatile and consumers’ disposable incomes remained under pressure,” Fitch noted.

In “South African Life Insurance: Good Performance in Difficult Environment,” Fitch wrote that they had now affirmed the rating outlooks for all life insurers in South Africa as stable after witnessing a number of positive factors in 2011, including market-wide improvements in operating performances, more robust capital levels, higher policyholder resiliency, as well as maintenance of market share. “The local insurance industry performed well in H111, despite tough economic conditions,” Fitch said in their report. “Profitability improved (although it remains under pressure), with major insurance companies reporting higher net profit compared with H110.”

According to Fitch, South Africa’s life insurance industry remains well regulated, highly competitive and moderately saturated. Following the merger of two large domestic insurers, Momentum and Metropolitan in 2010 to form MMI, the South African life market is now dominated by four major insurance companies – OMSA, Sanlam, Liberty and MMI. Together, these groups reported a 14 percent growth in net income for the first half of 2011, taking in ZAR7.1 billion (US$910 million) versus ZAR6.2 billion (US$790 million) in 2010. Fitch added that South Africa’s life insurers have been able to maintain adequate capital reserves during this period as well. Although the minimum regulatory capital adequacy requirement in South Africa is currently only equal to 1 times business outlay , the majority of the country’s life insurers are well capitalized with cover ratios of between 2 and 4, according to Fitch.

The Fitch report also discusses what upcoming regulatory changes could affect the South African life insurance sector going forward, including proposals for a compulsory retirement savings initiative, a National Health Insurance (NHI) system and the Solvency Assessment and Management project. The South African government is taking more proactive steps to combat both the country’s poor savings rate and crumbling public health infrastructure through compulsory pension and health insurance funds. While Fitch believes these moves could all significantly affect how life insurers operate, much about these schemes remains uncertain and the ratings agency expects major insurers will ultimately be able to adapt successfully to the proposed reforms.

In a separate report, “South African Non-Life Insurance: Strong Operating Fundamentals in Tough Environment,” Fitch found that South Africa’s general insurers were facing similar issues to their life market counterparts, and received an identical stable credit outlook in tow. “Despite the ongoing challenging operating environment, all non-life insurers rating outlooks remained stable in 2011. This was attributable to resilient and improved underwriting performances, strong solvency positions and the maintenance of market share,” Fitch wrote.

South Africa’s general insurance market is also well regulated and very competitive. While the market is also currently dominated by four major non-life insurers, these players are not nearly as dominant as the top four in the life market, and only control around a 50 percent market share between them. Like the life market as well, general insurers in South Africa are continuing to face a tough operating environment, where flagging consumer spending power, competition, and low interest rates, limit the ability of insurance companies to set appropriate premium rates for the risks underwritten, which in turn has put downward pressure on company profit margins. Furthermore, Fitch noted that the larger non-life companies are now facing significant competition from non-traditional insurance providers, such as direct writers, banks and retailers.

Despite persistent financial market volatility and a soft pricing market, the South African non-life industry was able to grow last year with the major general insurance companies all reporting higher net profits when compared with the previous year. According to Fitch, these insurers reported a 37 percent growth in annual net income, from ZAR818 million (US$104 million) in 2010 to ZAR1.12 billion (US$140 million) in 2011. This success was reflective of the gradual recovery in the local economy post 2008, improved underwriting performances, strong solvency positions and improved sales. Going forward, the ratings agency has applied a cautious outlook for the South African insurance industry. Fitch expects the margins of both life and non-life insurers to remain under some pressure going into 2012, owing to market competitiveness, downward pricing trends, and relatively stagnant consumer confidence in South Africa.

Companies Mentioned

Fitch Ratings

Fitch Ratings is a global rating agency and provides ratings and analytical services for thousands of banks, financial institutions, insurance companies, corporations, and national governments. Fitch was founded in 1913 and now features dual headquarters in New York and London with over 50 offices worldwide.

Globalsurance International Health Insurance - Expat Medical insurance products for you and your family no matter where in the world you live.

HDFC Life Going International

In an attempt to capitalize on the increased spending power of India’s sizable overseas workforce, HDFC Life, one of the country’s leading private life insurance companies, announced this week that they have opened a representative office in Dubai – the company’s first international operation, with more to come.

It is estimated that of India’s 1.3 billion population, more than 25 million are now currently living and working abroad. Indian expatriates make up a significant proportion of the working class across the MENA region, with many moving to the rich Gulf States during the oil boom to work in construction and in other more specialized fields. The Gulf has proven to be an attractive destination for South Asian migrant labour due to the higher incomes available, employment opportunities as well as the relative geographical proximity to India. Nowadays, roughly 40 percent of the United Arab Emirates’ population is of Indian descent. This considerable demographic development has however presented a problem for the Indian diaspora, as citizenship and residency rights are seldom granted to immigrants in these Gulf countries. Maintaining affordable access to necessary services like healthcare and retirement planning thus becomes an issue for many non-resident Indians.

Announcing the launch at a press conference in Dubai on Wednesday, Anup Rau, HDFC Life Executive Vice President and Head of Sales and Distribution, told reporters that the insurance firm would use their new representative office in Dubai to more effectively target the estimated 1.7 million non-resident Indians (NRIs) currently living and working across the United Arab Emirates, and forecast Rs300 million (US$5.9 million) in premiums by the end of the first business year. HDFC Life predicts significant growth as demand for insurance products will continue to increase in conjunction with rising personal incomes and demands for greater protection, investment and savings, and retirement needs.

HDFC Life has officially been operating out of Dubai for nearly three months now and, according to company officials, has already witnessed strong interest from the local Indian workforce for its life insurance products. “There were inquiries from NRIs to buy HDFC products estimated at Rs50 million (US$1 million) in the first three months,” Rau told attendees, adding that the company’s prime target will continue to be “white-collar NRIs returning home for some reasons.” Observing this considerable demand, the company has already hired nine people to work its Dubai office, with more to come if need be.

HDFC Life decided that Dubai would be the host of its first overseas subsidiary as the city-state is currently home to the largest population of NRIs in the Middle East. The insurer will then use their new representative office in Dubai to properly test the Gulf insurance market and adjust their regional business strategy accordingly going forward. HDFC Life plans to enter other GCC countries are on hold due to Indian industry regulations, which do not allow locally domiciled insurers to launch full operations or set up joint ventures in international markets without exhaustive regulatory procedures. However, as Rau explains, the success of the Dubai branch will ultimately decide HDFC Life’s international expansion plans going forward, both within the Gulf region and globally. “The launch of our operations in Dubai is the beginning of HDFC Life’s expansion into the region. The objective of this office would be to serve our existing policy holders and further understand their financial needs better,” Rau said.

HDFC Life is a joint venture established in 2000, between Housing Development Finance Corporation Limited (HDFC Ltd.) and Standard Life Assurance Company, one of the United Kingdom’s leading financial services firms. The joint-venture company has been quick to expand in its home market over the past decade, and now boasts one of the largest distribution networks for an Indian private insurer with over 500 branches servicing customer needs in some 700 cities and towns across the populous South Asian country. While there is still considerable scope for insurers in India to increase their coverage in a country with a population exceeding a billion people, most uninsured, HDFC Life believes that now is the time to look outside the country and will leverage its strong brand presence and existing clientele to market to and eventually through the sizable global Indian diaspora. “HDFC Life is a preferred and trusted brand in India and has diverse product portfolio catering to the different life stage needs of an individual,” Rau explained, adding that “with a strong brand proposition, well balanced product portfolio, need-based selling approach, long-term investment philosophy, and above all a strong lineage, HDFC life aims to successfully establish its presence in the [GCC] region within the next few years.”

Commenting further on HDFC Life’s strategy and reasons for continued international expansion, M.I. Taher, Vice President and Head of International Business, noted that entering Dubai at this time was a crucial step in the evolution of the company, one which could put HDFC Life on course to compete with more prominent multinational insurance companies in the near future. “The objective of our operations in Dubai is the first step towards understanding the Gulf market, the customer segments, apart from serving our existing policy holders and further understanding their financial needs,” Taher said. HDFC Life’s products are aimed at Non-Resident Indians in the UAE in order to better cater to their insurance needs, and needs of their families back home. “Our presence in this region will help us research the market better and devise new products catering to the specific needs of the NRI’s here,” Taher concluded.

Insurance Company Mentioned

HDFC Standard Life Insurance Company Ltd

HDFC Standard Life Insurance Company Ltd. is one of India’s leading private life insurance companies, which offers a range of individual and group insurance solutions with a strong base of financial consultants. The company provides a line of protection, retirement, savings and investment, children, health, and group plans. It is a joint venture established in 2000, between Housing Development Finance Corporation Limited (HDFC Ltd.) and The Standard Life Assurance Company, a leading provider of financial services from the United Kingdom.

Globalsurance International Health Insurance - Expat Medical insurance products for you and your family no matter where in the world you live.

New Health Insurance Deal in Jordan

Arab Orient Insurance Company (AOIC) made news this week by finalizing their partnership agreement with French insurer SCOR, who will now re-insure their health insurance portfolio, one of the largest in Jordan.

In a press statement, AOIC Chief Executive Isam Abdelkhaliq, heralded their new joint venture as an important step for both the Jordan health insurance market and his company. “This agreement adds a new dimension in the medical insurance market in the region and is a record for the great achievements by Arab Orient Insurance Company.” The deal was reached at the signing ceremony at SCOR’s Cologne headquarters in December 2011, with each company’s president and top executive in attendance, but took until mid-January to receive the necessary approval from Jordanian regulators to proceed.

Health insurance represents the second largest segment in Jordan’s insurance market. In 2010 health insurance premiums amounted to JD93.9 million, or 23 percent of the domestic market’s total output. Over 80 per cent of Jordanians are estimated to be covered by some form of health insurance at present, either in public or private schemes, and the Ministry of Health has stated its intention to expand coverage to all citizens by 2014, a reform idea shared by many neighboring Gulf countries. Individual insurers in Jordan cater to a small private sector, as public healthcare is provided to public sector employees through various government-run insurance schemes. Despite this, medical insurance business has grown at compound average growth rate of roughly 16.6 percent over the past ten years and the long term trend for greater medical coverage seems to be towards higher volumes and perhaps sustainable premium growth. The Jordanian health insurance market is not without it’s problems however, suffering from low profitability in recent years on the back of intense competition, which has placed downward pressure on policy prices while the costs of medication and medical services continue to rise. Despite these limited margins however, local insurers simply cannot afford to limit their exposure to medical insurance as it continues to be a major revenue source and greater international attention is surely imminent.

AOIC was established in 1996 and has gone on to become one of the leading non-life insurance and reinsurance companies in Jordan, in terms of premiums. The company was the first accredited insurance company in Jordan and is also one of only two Jordanian companies to be rated ‘B++’ or higher for four consecutive years by ratings agency AM Best. In accordance with the rising demand for healthcare and financial products occurring throughout the Gulf Region, AOIC has shifted its focus increasingly to providing comprehensive medical insurance services through new partnerships, products and distributions channels, which will provide services and medical programs to its agents through the best coverage and the broadest medical network. The deal with SCOR, whom they describe as “one of the largest companies for medical re-insurance in the world” in their statement, will provide AOIC will the necessary capacity and financial security to both care for their existing Jordanian customers and pursue new long-term business opportunities as well.

Mr. Abdelkhaliq added that partnering with prominent Western insurers has enabled the company to tap into overseas industry expertise and improve the quality of their coverage and service options to better match international standards. “In addition, the signing of this agreement solidifies the effort of the medical insurance staff, a collective of highly experienced administrators, doctors and nurses who work around the clock to provide renowned quality service to the 185,000 customers providing the best coverage and the largest medical network in the Kingdom,” Abdelkhaliq said. Last year the company entered a similar partnership with British healthcare provider BUPA to upgrade and review the health insurance products and services available in Jordan. AOIC has also taken greater steps to better integrate their customer service experience, launching two fully functional service and care offices at Arab Center Hospital and Ibn al-Haytham Hospital in January, with more branches expected to launch at The Specialty Hospital and Jordan Hospital later in the year. AOIC has aimed to distinguish itself further in the market by launching these new offices, hoping that customers will appreciate a more efficient administrative process in affiliated hospitals.

For SCOR meanwhile, Jens Sonnenschein, Head of Middle East Departmental Director, explained that their decision to partner with one of the largest non-life insurance companies in the Middle East would not only expand their geographical footprint considerable but could work to enhance the medical insurance business in Jordan’s insurance market. Scor has been looking to strengthen its position across global reinsurance markets as part of the company’s 2010-2013 strategic plan, titled “Strong Momentum.” The plan has targeted improved profitability and solvency combined with a rebalance between life and non-life contribution inside Scor’s portfolio. In accordance with this strategy, SCOR sold its US fixed-annuity business for US$55 million in February 2011 in order to free up capital for expansion of its core life reinsurance businesses. The French reinsurer then completed the ambitious acquisition of Transamerica Re, a life reinsurance division of Aegon, for US$912.5 million in August, becoming the second-largest US life reinsurance company in a move to better develop value added services for its insurer clients.

According to their most recent earnings bulletin, SCOR has done well by their expansion strategy so far. For the first nine months of 2011 SCOR’s premium income was €5.421 billion ($7.345 billion), up by 8 percent on the corresponding period in 2010. The French insurer’s third quarter reporting period, the first in which newly acquired Transamerica Re was included, has been a particular highlight, with gross written premiums surpassing €2 billion in a quarter for the first time, and up 14.7 percent on last year. SCOR Global Life gross written premiums meanwhile hit €984 million, a 30.5 percent annual improvement, with the Transamerica Re’s business contributing over €256 million since August 2011.

Multinational insurers like SCOR will continue to look towards markets in the Middle East and North Africa region as a rich and sizable prospect base to tap. Although the recent Arab Spring protests may hinder insurer business in the short term, there is still considerable opportunity for foreign investors to build the insurance trade across the MENA region.

Insurance Company Mentioned

Scor

Scor is organized through two main businesses – SCOR Global P&C and SCOR Global Life – which are leading underwriting and reinsurance providers. The group writes business in Europe, Latin America, Asia, the Middle East and the USA.

Globalsurance International Health Insurance - Expat Medical insurance products for you and your family no matter where in the world you live.

Deloitte Report on Insurer Prospects for 2012

Though saddled with ongoing global economic challenges, moribund interest rates and intense competition, insurance companies will need to focus on innovation, sound business practices and emerging market opportunities in order to generate growth and profits going forward, according to a new report from international consulting firm Deloitte.

Released today, Deloitte LLP’s “2012 Global Insurance Outlook: Generating growth in a challenging economy takes operational excellence and innovation,” assesses the international insurance industry’s prospects for 2012 and the decade ahead. The report identifies that persistent global economic turmoil, high unemployment, low interest rates and a slow housing recovery have created unique challenges for insurers operating in US and Western European markets, sapping both consumer demand and investment income simultaneously. While the US economy has shown recent signs of recovery in terms of consumer spending, given Europe’s ongoing struggles with sovereign debt issues, Deloitte sees little respite for insurers on the economic front at present.

Despite these underlying macroeconomic concerns, there are still many things insurance companies can do for themselves to generate profitable growth and increase their market share. According to Deloitte, product development, distribution and customer service remain three key areas where industry innovation could reap sizeable returns almost immediately. Insurance companies in general must continue evolving their operations to improve margins and generate bottom line growth. They can do this by adopting new technologies and risk management strategies to squeeze out unnecessary costs and use their people and capital more productively.

According to Deloitte’s market outlook, insurers involved in the property and casualty sector will likely benefit from increased top line prices due largely to 2011’s unprecedented string of natural catastrophe losses and the subsequent rate hikes in reinsurance premiums. Other non-life lines will also be able to recover, as auto and general insures charge higher loss-driven rates while the pricing market in commercial lines appears to have bottomed out with both insurers and brokers reporting consistent premium increases on renewals. Meanwhile in the life and annuity market, Deloitte notes that while sales of variable annuity products are growing, products with structured guarantees will probably continue to struggle due to rock bottom global interest rates. Sales of traditional whole life insurance policies could also further improve if insurers update their marketing, sales and distribution systems to target a still largely underinsured market.

Deloitte lists several possible avenues for growth insurers could pursue in 2012 and beyond, the most attractive of which perhaps being to tap emerging insurance markets with faster-growing economies for sustainable premium growth. With mature market economies in the US and Western Europe unlikely to generate consistent growth prospects in the short-to-medium term, insurers may be able to offset any anticipated shortfall and find success by entering potentially lucrative emerging markets, with China, India and Brazil being particular highlights. The Deloitte report acknowledges that while doing businesses in these markets often comes with unique business challenges, including cumbersome regulation, poor infrastructure and distribution networks as well as cultural differences, the overwhelming demand for greater insurance coverage and financial security amongst these countries’ expanding middle class populations will likely provided sufficient growth opportunities to international insurers with the resources to adapt and capitalize on them. According to Insurance Information Institute’s 2010 statistics, the ratio of general insurance premiums to GDP is still just 1.5 percent in Brazil, 1.3 percent for China and only 0.7 percent in India. By comparison, the penetration rate is 4.5 percent for the United States, 4.1 percent for Canada and between 3.1 to 3.7 percent in the major European economies. These differences translate into a trillion dollar coverage gap between West and East, plenty of room for new insurance companies to set up shop and acquire a share of these still largely untapped markets.

Insurance companies can also expand through strategic mergers and acquisitions. Deloitte noted that m&a volume was up during 2011 although deals tended to be calculated bolt-on acquisitions with buyers adding new product lines, distribution channels, and international market share. Sellers meanwhile divested from underperforming business lines to shore up their bottom lines and left overseas markets where they lacked sufficient scale to thrive. The Asia-Pacific region has fast become the most attractive market for investment activity, accounting for 23 percent of global M&A insurance activity in the first half of 2011, up by 12 percent on fiscal year 2010. Deloitte say there is potential for an uptick in bigger deals in 2012, especially if organic growth in mature markets remains elusive. The international insurance market in fact remains ripe for more consolidation due to excess capital, bargain pricing and low returns.

As well as expanding outward, Deloitte mentioned several things insurers could do to pursue operational excellence at home, with adequate preparation for upcoming regulatory changes that could arise when the Dodd-Frank Act and Solvency II come into effect being one such requirement. The report adds that many insurers are improving the integration of enterprise risk management (ERM) and taking greater steps to prioritize good governance, infrastructure and disclosure over risk modelling into their standard operation procedures. Improving both recruitment and retention of industry talent has also become a major challenge facing insurers today.

Insurance product innovation and augmentation is also an area where Deloitte says individual companies can now exert greater control over their own destiny during these tough economic times. Going forward, insurers must use market research effectively to ensure that both new and traditional insurance policies remain relevant to the needs of consumers operating in our new global economic environment. According to the report, the predominance of international business supply chains pose new property and casualty risks which have in turn necessitated new types of insurance products, including cyber liability, green construction cover, nanotechnology insurance and global political risk cover amongst others. Meanwhile in personal lines, more hybrid products are coming to market which meet multiple needs, including long-term care benefits in life and annuity, private unemployment insurance, homeowner’s value protection, and other products. Overall, it will be incumbent on insurers to continue and explore new niche markets and develop specialty coverage products to generate additional sales.

In addition to developing new products and entering new markets, Deloitte adds that perhaps insurers should take their social media marketing efforts more seriously. While most insurance companies already have a presence on prominent social media sites, like Facebook or Twitter, many have yet to analyze this massive dataset properly. According to Deloitte, these readily available analytics can offer valuable insights about buyer needs and can improve customer experience as well as the efficiency of their operations.

Overall, the report emphasizes that smart insurers should be able to weather current market conditions and potentially even thrive through sound, strategic investments that work to secure growth, achieve operational excellence and encourage innovation. Sam Freidman, Deloitte’s insurance research leader, expalins that “while achieving growth, operational excellence and innovation in such a difficult economic and competitive environment might be easier said than done, opportunities are available for insurers that can seize the moment. There are many options insurers might consider to grow even in the toughest of economies if they can overcome the obstacles they face.”

Company Mentioned

Deloitte

Deloitte is the world’s largest private professional services organization. The consulting firm, founded in 1845, now has over 170,000 staff, working out of 140 different countries. Deloitte provides audit, tax, consulting, enterprise risk and other financial advisory services through its many member firms.

Globalsurance International Health Insurance - Expat Medical insurance products for you and your family no matter where in the world you live.

RMB to Play Bigger Role in Hong Kong Insurance

Hong Kong has announced new measures this week to liberalize yuan capital requirements for local banks in a bid to promote the city-state’s status as China’s main offshore currency centre. This move will likely result in more yuan-denominated insurance products and retirement funds becoming available in Asia’s premier insurance market soon.

On Tuesday, the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, declared that local banks would now be able to include both their holdings of yuan-denominated Chinese sovereign bonds that were issued locally in Hong Kong and bonds traded within Mainland China’s inter-bank market as part of their mandatory capital reserve requirements going forward. Prior to this regulation, all Hong Kong-based banks trading on the offshore yuan market had to set aside cash and settlement balances as reserves (equal to 25 percent of customer deposits) with a separate yuan-clearing bank or through the fiduciary account in the People’s Bank of China, as part of the city’s strict risk management regulations. Relaxing these requirements now will allow Hong Kong banks to take on more risks, hold more cash for mainland interbank lending, and increase their involvement overall in the fledgling offshore yuan market .

This announcement follows the HKMA and UK Treasury decision earlier in the week to launch a new joint private sector international forum designed to promote the globalization of the yuan. The forum will enhance cooperation between Hong Kong and London’s financial centers and work to support the continued development of the offshore yuan market.

After years of stringent currency isolation, the Chinese government is now attempting to promote the use of the yuan overseas as part of their long-term plan to turn their notes into an international reserve currency to compete alongside the United States dollar. China sees the growh of the Hong Kong yuan market in particular as a key component to this objective, and are working to support it’s continued development. Yuan-denominated deposits in Hong Kong increased to CNY627.3 billion (US$99.18 billion) in November 2011, up by 1.4 per cent from a month prior. London, the world’s largest foreign exchange centre, will soon be permitted a slice of this yuan action too, as the United Kingdom looks to boost its trade and investment ties with Asia’s fast-growing economies.

Speaking at the annual Asia Financial Forum in Hong Kong yesterday, HKMA Chief Executive Norman Chan told attendees that the new relaxed rules on yuan capital requirements would ensure the stable development of the offshore Chinese currency market and become a boon for the rest of the international business community as well. “These measures greatly expand the scope of offshore yuan business development,” Chan said, adding that this in turn “raises the flexibility on how banks manage their yuan assets, favoring further growth in the market.” The HKMA has advised however that banks should of course continue to adopt prudent measures in measuring their foreign exchange and liquidity risk when engaging in yuan-denominated activities. “We are required to change financial rules according to market conditions. Our principle is to make gradual change while keeping risks at bay,” Chan concluded.

One of the beneficiaries of this development will of course likely be the Hong Kong insurance industry. The HKMA Chief admitted that they were already looking for ways to get insurer investment back into the Mainland interbank bond market. Increasing insurer trade would in turn lead to an increase in the number of yuan-denominated insurance products and retirement funds with longer maturity available in China. According to HKMA statistics, the value of new life insurance premiums priced in yuan hit a record CNY4.43 billion (HK$5.4 billion) during the first half of 2011, representing about 13.8 percent of the total Hong Kong life market for the year. The mainland insurance market offers business opportunities that HK insurers cannot ignore, provided they are permitted to engage with them.

One of Hong Kong’s chief insurance sector legislators, Chan Kin-por, was also on hand at the Asia Financial Forum to explain that currently only China Reinsurance is allowed to invest the yuan-denominated premiums. “If insurers could directly invest in the mainland interbank bond market, that could generate 3-4 percent return almost risk- free,” said Chan Kin-por, adding that a direct investment channel for HK insurers is long overdue. Four HK-based insurance companies have already confirmed their interest in the mainland bond market and will likely be granted an investment quota soon, with pension funds expected to wait a while longer.

Despite persistent financial market volatility, Hong Kong’s insurance industry kept pace with double-digit growth rates posted in several neighboring Asia-Pacific markets throughout 2011. According to the latest figures made available on the Office of the Commissioner of Insurance (OCI) website, Hong Kong’s insurance companies posted HK$172.8 billion (US$22.2 billion) in gross written premiums for the first three quarters of 2011, a 12.6 percent growth rate over the same period last year, with overall underwriting profit rising from HK$1.7 billion (US$220 million) to HK$2.1 billion (US$270 million) during that time.

While these double-digit premium growth rates may prove elusive in 2012, Hong Kong’s insurance companies will likely benefit from the business potential available across the Asia Pacific region, specifically Mainland China. According to a recent report issued by the Hong Kong Federation of Insurers (HKFI), Mainland Chinese customers are projected to contribute 20 to 30 percent of all new HK insurance sales over the next five years. China is now the world’s second largest economy, with an emerging middle class population ready to spend vast sums on a variety of insurance and investment products. This tremendous potential customer base has presented sizeable opportunities to major international financial markets, most notably Hong Kong of course, which is both convenient geographically and culturally as well. While this Hong Kong-China relationship has frequently been tested, made notable last year by maternity tourism abuse, overall the mainland market will provide many HK businesses with bountiful business prospects going forward. Hong Kong insurance companies that can develop both innovative and cost-effective insurance products not yet available on the Mainland will be able to capitalize upon a still under-penetrated and lucrative market.