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EC News Asia Edition (13th September 2017)

  • Publish Date: Posted over 6 years ago
  • Author:by Alan Jarque

Round-up of the latest news and developments from the Asian insurance market with stories from HSBC Insurance, XL Catlin, PartnerRe and more.  

HSBC Insurance appoints Moncreiffe as Hong Kong CEO

HSBC Insurance has appointed Edward Moncreiffe to CEO in Hong Kong.

In his new role, Moncreiffe will be responsible for overseeing the insurance and pension business in Hong Kong.

Since the beginning of the year, Moncreiffe has served as interim CEO and head of distribution, executing the insurer’s growth agenda, including the launch of ONEdna mobile genetic testing proposition as well as launching the flagship of Wealth Goal Insurance Plan.

Moncreiffe joined HSBC in 2005 and has served in a number of senior leadership roles spanning across broking, underwriting, reinsurance, life and non-life insurance business lines. 

Prior to moving to Hong Kong in 2016, he served as head of life and pensions for the firm in Brazil and had been global head of partnerships and global head of retail insurance.

XL Catlin strengthens casualty capability in Asia

XL Catlin aims to strengthen its casualty capability in Asia, announcing two new hires to the firm.

Elishe Quek is hired as an underwriter and will be responsible for retail liability in Singapore and wholesale casualty insurance spanning Asia.

Quek joins XL Catlin from AIG where she most recently served as a casualty underwriter.

Prior to AIG, Quek held positions at Sompo Japan Insurance, Aon Singapore and Tokio Marine Insurance, bringing over 22 years’ experience within the insurance industry with her.

Alice Chong is hired as senior underwriter and will be responsible for developing the firm’s casualty portfolio in Hong Kong.

Chong brings 11 years’ experience with her including 9 years at AIG where she most recently served as casualty underwriting manager.

PartnerRe names Matrundola as new CEO

PartnerRe has appointed Jerome Matrundola as its new CEO of the life and health division in Asia Pacific, effective 11 September.

In his new role Matrundola will work closely alongside the exiting teams in Singapore and Zurich, leading the companies’ life and health business operations in the region, growing and enhancing its presence in the life and health reinsurance market.

Under Matrundola’s oversight, the division is tasked to develop innovative and holistic reinsurance products designed to address the needs of the markets in the Asia-Pacific, the insurer said.

In his new role Matrundola  will be based in Hong Kong and report to Marc Archambault, CEO life and health and group executive committee member.

Matrundola joins PartnerRe from SCOR, where he was head of North Asia and regional partnerships.

InsurTech could save Asian insurance industry USD $300bn a year: UBS

According to a recent report by UBS, by 2025 InsurTech could reach savings of around USD $300bn a year for the Asia insurance industry.

UBS expects competitive pressures to drive insurers to pass on a majority of cost savings to customers, however the overall profits of Asia insurers is expected to increase by approximately $55bn a year.

The increase of InsurTech will mainly benefit consumers with more personalised solutions and better customer service experiences with lower overall costs.

Insurers who can quickly adapt to InsurTech may also benefit from cost savings, better profit margins and enhanced brand awareness.

Insurers who are slow to adapt may be affected by rapid decline in market share.

All technology-driven shifts bring costs to employment with UBS estimating that 1.5 million jobs in Asia’s insurance industry are at risk of redundancy by new technological applications in the medium term. This is mainly in the operations and administrative support areas.

Although the agency channel will continue to play a main role, especially in emerging Asia, UBS expects the agency forces to gradually reduce as digital distribution becomes increasingly popular.

The disruption by InsurTech is likely to be more profound in emerging Asia than the rest of the world. Asia is a very tech savvy region however, due to low awareness, low incomes and low insurer penetration, the region remains heavily underinsured.

With insurance processes increasingly gravitating to mobile platforms, and insurers’ ability to lower premiums from improved efficiencies in distribution, risk pricing and product development, InsurTech has the potential to structurally change the way Asian consumers view insurance – from an undesirable purchase to a necessary one. 

Meanwhile, Asia is one of the most underpenetrated insurance markets in the world. Emerging Asia held 43 percent of the world’s population but only 13 percent of total premiums in 2016. Due to the large populations and geographical dispersions in emerging Asia, traditional distribution models are costly and inefficient.

UBS expects InsurTech to accelerate the penetration of insurance protection in Asia. As the population of uninsured decreases, the burden on government resources should reduce meaningfully, resulting in an increase in excess funding for other public services such as education and infrastructure which will benefit the entire society.

Competition in Asia’s insurance industry will likely intensify as customers demand greater transparency and convenience, more tailored products, easier claims processes and better customer services. Differentiation in pricing, services and customer engagement can induce meaningful shifts in market share in the medium term.

Incentive-based products could lead to positive shifts in customer behaviours. As these products become more widespread, such changes could potentially occur en masse and have far-reaching implications. Even marginal changes in the prevalence of fire and car accidents, healthcare costs and employee productivity can yield immense benefit to society.

ZhongAn receives approval for IPO

China’s first internet-only insurer, ZhongAn Online Property and Casualty Insurance, has received approval from the Hong Kong stock exchange for its planned initial public offering (IPO).

The IPO would be the biggest by a FinTech company in the city, which wants to encourage more new listings of so-called new economy start-ups.

With direct knowledge of the IPO, Reuters citing sources reported that the IPO could raise in excess of US$1bn and the insurer plans to launch the IPO and take orders from investors as early as 18 September. The sources could not be identified as the details are not public as yet.

Zhong An was founded in November 2013 by Alibaba Executive Chairman Jack Ma, Tencent Chairman Pony Ma and Ping An Insurance Group Co of China Chairman Ma Mingzhe.

Its major shareholders include two of China’s largest internet companies; Alibaba Group’s Ant Financial affiliate with 16 percent, and Tencent Holdings with 12.1 percent. Ping An holds 12.1 percent, according to ZhongAn’s prospectus.

ZhongAn is among several Chinese FinTech companies tapping investors to fund expansion as consumers move more of their banking, payments, investing and insurance online.

In 2016, the world’s most-valuable fintech company, Ant Financial, raised $4.5bn. This was one of the largest funding rounds for a private internet company, while peer-to-peer lending and wealth management platform Lufax raised $1.2bn and JD Finance, the finance subsidiary of online direct sales firm (JD.O), raised $1bn.

Firms moving risk management to business units and senior management in APAC

A recent study from PwC identified that companies within Asia Pacific are increasingly shifting the risk management programme back to their senior management and business units, whilst increasing alignment across all three lines of defence.

A survey was carried out in 2016 with 1600 executives spanning 30 industries, aiming to identify how companies were responding to managing risks and the prevailing trends. The survey reported that the second and third lines of defence consist of risk and compliance functions along with internal audit, both critical players when executing risk management effectively.

A clear trend identified was corporate executives and business units taking the lead role by aligning ownership of key business risks with ownership of business and decision making. This is resulting in a collaborative approach to risk management with risk accountability in the first line of defence supporting greater organisational resiliency and growth.

Some of the key findings were:

  • 70 percent of executives in Asia Pacific compared to 63 percent of their global counterparts agreed that moving risk management responsibilities to the first line of defence makes their company better at anticipating and mitigating negative risk events.
  • In China and Hong Kong, the 2nd line of defence is not well-developed and many organisations lack a formal enterprise risk management framework. Risk management is still mainly driven by the 3rd line of defence, especially in the SME segment.
  • Cybersecurity is a growing risk of particular concern. Encouragingly, 58 percent of Asian Chief Risk Officers (CROs) say that partnering with CIO/CTO and business leaders to minimise these risks is top priority for their risk function in the next 18 months.
  • 67 percent of APAC CROs report having senior management’s support in the value of a strong risk management strategy, trailing 72 percent globally. As a consequence the region also lags (53 percent vs 61 percent globally) in the risk management team increasingly providing proactive advice and guidance to other business functions. These are the areas where the CRO can take a leadership role to improve their organisation’s overall approach to risk management, said the report.

Mr Jim Woods, Global and China/Hong Kong Risk Assurance leader at PwC, suggested companies in APAC should follow the below guidelines, especially Hong Kong and China in order to move towards a first line of defence risk management:

  • Set a strong organisational tone focused on risk culture. Begin with the CEO, CRO and the Board and permeate within the organisation, with continuous monitoring and measurement of its effectiveness.
  • Align risk management with strategy at the point of decision-making. This is so that first line decision makers anticipate business risks when setting tactical priorities.
  • Recalibrate risk management programmes across all three lines of defence. The first line owns business risk decision-making, the second line monitors the first, and the third line provides objective oversight.
  • Implement a clearly-defined risk appetite framework. This means creating commonly understood risk taxonomy for aggregating, tracking and predicting risk and leveraging technology and data analytics when available.
  • Develop risk reporting, as this will allow executive management and the board to discharge their risk oversight responsibilities. The key is to consider risk management across various stages from strategy to execution.

Great Eastern finds Bancassurance niche 

Great Eastern Life has repositioned its business orientations in Indonesia as a bancassurance provider.

In cooperation with Bank OCBC NISP, Great Eastern Insurance has launched its new product Legacy Protector.

Research carried out by the Singapore-based company identified a gap in the market for the products, which led to the repositioning of the business, said Clement Lien, president director for Great Eastern Life, Indonesia.

The new bancassurance offers risk protection not only to the policy holders but also to their descendants. 

Lien said “The product can be beneficial for [the next] three to four generations and it is also transferable to the children or grandchildren.”

Blockchain to change insurance business model

Deloitte has said that blockchain will drastically change the business model of the insurance industry.

Already being used in other applications including digital banking, trade finance and cross border payments, blockchain will dramatically change the insurance sector as the technology can reduce the uncertainty of insurers’ risk pool system.

Deloitte has been working with the Hong Kong Monetary Authority (HKMA) to adopt the technology for the bancassurance sector and is set to launch the HKMA-backed project in the fourth quarter of 2017.

In Asia, one of the main uses for blockchain will be to synchronise product and customer information between banks and insurance companies, according to Paul Sin, the fintech partner leading the Asia Pacific blockchain lab at Deloitte.

Sin said other likely uses of blockchain are tracking goods that are covered by insurance companies and detecting duplicated claims.

Global consulting leader for Deloitte financial services, Joe Guastella, said blockchain usage is currently more about improving the process than addressing actual risks.

Growth expected for reinsurance business in Asia

Competition for reinsurance business in Asia is expected to grow more intense, as the pain being inflicted on the industry in the US forces greater diversification in search of more profitable opportunities.

The contributing factors that have led to 2016 being the worst performing year for the reinsurance business in Asia (excluding 2011 when the Tsunami and Thai floods resulted in significant catastrophe losses) are lower rates, broader terms, poor investment returns and constant pressure from alternative capital.

According to AM Best, competition still remains high. At the end of 2016, the dedicated reinsurance capacity was estimated at US$420bn with US$75bn of that coming from third-party providers such as insurance-linked securities (ILS), which continue to drive investment due to the sector’s lack of correlation with other traditional asset classes.

This interest from alternative capital comes despite poor fundamentals. Across the entire reinsurance sector, return on equity (RoE) is declining five percentage points below the 8 percent figure in 2013, with Bermuda companies hurting the most at an RoE of just 6.8 percent in 2016.

The worrying issue for reinsurers is that these results occurred in a benign year, leading AM Best to worry about the industry’s resilience.  Already this year two major hurricanes have struck with the overall losses not yet understood.

The situation may be worse than it first appears, as the competitive pressure faced by reinsurers is not only reflected in pricing — it has also been absorbed by more generous terms and conditions, which is less visible at the moment but may become all-too apparent in the event of a significant catastrophe year.

AM Best have voiced their concerns, even if the industry escapes 2017 relatively unscathed, saying “If the reinsurance market is booking the accident year combined ratio at a loss in a relatively benign catastrophe year, and that in and of itself is not the impetus for change, the next logical question is: What will it take to turn the market?”

AM Best expects that mergers and acquisitions will continue to reshape the industry, not least because capital remains abundant, debt is cheap and organic growth is difficult to come by.

Reinsurers that aren’t looking for a deal may seek to build income streams by working with alternative capital to identify opportunities in a market that is becoming increasingly challenging even for ILS.

The outcome of Brexit in the UK and Trump’s tax reform plans in the US are adding to the market uncertainty. AM Best sees opportunities to grow the reinsurance industry via cyber insurance and mortgage reinsurance, however there are significant risks there too and not many benefits.

AM Best said: “The market headwinds at this point present significant longer-term challenges that industry players need to work through,”

“We’ve said that the companies that are not proactive will not determine their own destiny.”

The strongest players tend to be those with the broadest books and the largest geographic footprint, which could mean an increasing focus on Asia going forward.

Asia’s growth opportunities favour tech-savvy insurers

Insurance tech innovation has allowed legacy insurers to discover more ways to equip themselves to approach the emerging markets in Asia.

As is the case with recent tech-partnerships for Aviva and AXA, if current insurers are willing to embrace and invest in technology, they have a chance to dominate emerging markets.

In 2016, AXA initiated collaboration with e-commerce powerhouse Alibaba. At the beginning of this year, Aviva also partnered with Chinese tech giant Tencent.

These deals will see the insurer harness their partners’ technological expertise and regional footprint to expand their distribution networks within the markets.

Business Insider reported a list of reasons concluding why Asia is an ideal expansion target for insurers – so long as they recognise the importance of innovation and adapt to the market:

  • Many consumers are underinsured – Markets such as India, Indonesia, and the Philippines are underserved in terms of insurance. These markets have premium per capita of below US$1000, compared to around US$4000 for the UK and US markets. The average Asian consumer may find it difficult to afford many insurance policies, but technology can allow insurers to minimise costs and make policies more affordable for emerging markets.
  • Asia will soon have the world’s highest middle-class population – By 2030, Asia will have around 64 percent of the world’s middle-class population. Middle-class people have higher disposable income and can afford financial products to protect their assets. The population is more exposed to technology and has higher expectations on customer service.
  • Geography can work against physical insurance distribution models – Many archipelagic countries for example, Indonesia make traditional branch-based broker distribution networks less viable. As insurers shift to digital distribution models, this can minimise costs in operating in these markets and make it more convenient for clients.

The report said that in order to achieve success in the emerging Asian market, insurers will have to collaborate.

More insurers are expected to follow in the footsteps of AXA and Aviva, capitalising on the growth potential offered by the Asian market.