Insurers See Strengths and Hurdles in Asia Pacific Region

Posted on Mar 27, 2013 by Sergio Ulloa (G+)

 The Asia Pacific region continues to be the focus for many researchers of the insurance industry, and will even be "the dominant driver of world insurance growth by 2020," according to a study published by Munich Re's Economic Research Department. The study predicts that premium income in the insurance industry in the Asia Pacific region is likely to "double by 2020, with more than €1 trillion [$1.292 trillion], nearly half of the estimated additional global primary insurance premiums being generated in Asia-Pacific until 2020 (worldwide €2.2 trillion [$2.8424 trillion])." Two of the largest contributors to this trend are China and India, which are expected to contribute about 70 percent to these figures.

"Five of the expected global top-ten primary-insurance growth markets will be in the Asia-Pacific region, both in property/casualty (P/C) and in life," according to the report. Munich Re suggests that China may have the highest increase of primary insurance premiums of any other country in the world until about 2020, followed by the United States and Japan.

The report goes on to state that P/C primary insurance premiums "currently grow on average by 11 percent annually. This is twice as high as the second-placed region, Eastern Europe." Michael Menhart, Chief Economist at Munich Re, said: "China, India and Indonesia will be the top-three growth countries in P/C, with average growth of above 12 percent over the forecast period (2012-2020) in China and India, and almost 10 percent in Indonesia."

According to the data, Indonesia's P/C primary insurance volume will increase more than two-fold from about €3 billion [$3.876 billion] currently to to about €7.3 billion [$9.432 billion] by 2020. "Average growth rates of other emerging countries, such as Vietnam, the Philippines, Malaysia and Thailand, range between 6 percent and 8 percent," according to the report.

Some of the driving factors for these figures are the growing middle classes in the Asia Pacific region and the increasing risk awareness. As consumer savings increase, this is "fueling the demand for life and health insurance, changing regulations and greater consumer protection will increase demand for motor and liability insurance, while large infrastructure investments will boost the demand for industrial insurance."

While there are many signs and indicators that the region will experience strong growth, Munich Re proposes that this region will continue to be "severely" uninsured, particularly in the event of catastrophic events.

Munich Re's GeoRisksResearch features long-term statistics that convey more clearly the unique situation in the Asia Pacific region. Their data shows that since about 1980, 40 percent of all natural catastrophes worldwide occurred in the region, accounting for 45 percent of all economic losses, yet only 18 percent of all insured losses. In comparison, North America experienced losses of about 64 percent. In addition, the more than 50 percent of all deaths because of a natural disaster were in the region.

Munich Re has been closely researching climate change for more than 20 years and the research shows that during the last 30 years, weather-related catastrophes have increased three-fold in Asia Pacific. This is not a trend that is likely to reverse. Some of the causes for climate change in the region include "an increase in population, higher value concentration in exposed areas and climate change, affecting the weather pattern, the loss potential is increasing. As insurance density is not expected to rise at the same pace, this will leave the region with a growing uninsured disaster-loss bill," according to the report.

"Loss mitigation measures are cost-effective instruments for protecting communities on a sustainable basis. Analyzing and reducing risk - and offering adequate insurance against it - helps to considerably reduce the human and financial impact of natural disasters," said Ludger Arnoldussen, Munich Re Board member responsible for Asia-Pacific.

"Closing the existing gap of insurance coverage is a very powerful instrument in supporting long-term growth. At the same time, effective catastrophe-risk financing solutions need to be introduced by governments," he added.

Although there are some risks in the region, the study lays out some long-term strategies for how to resolve these issues, including how to make decisions on where to build, improving building codes, or extending infrastructure such as dams. There are also plans and suggestions for how to prevent those in the private and commercial sectors to not be uninsured or under-insured.

The report also adds that the "insurance industry needs to improve its risk assessment in the region, taking into account the fast development that creates new peak exposures and hot-spot locations, and can have an impact on worldwide supply chains." Munich Re has developed a platform called RiskMapper to help clients that are interested in tracking and analyzing these exposures.

Finally, the study notes that many governments are already looking for effective disaster management solutions because of the increasing number of natural disasters that have affected the region in recent years.

"Instead of compensating disaster losses through emergency one-off disaster levies or tax financing, more forward-looking approaches that include risk reduction, prevention and insurance are possible alternatives," according to the report.

The report goes on to address that increased awareness of the disasters should be addressed by both public and private sectors. Munich Re asserts that they are able and experienced in not only providing more traditional insurance policies but are also committed to developing disaster-risk insurance schemes that would aim to ensure countries' development is protected and that they are able to maintain sustainable growth.