AEC will boost penetration in SE Asia

The Association of Southeast Asian Nations (ASEAN) Economic Community (AEC) initiative—established in 2015 to move Southeast Asia towards becoming a globally competitive single market across the 10 member states—is expected to have a positive impact on ASEAN insurance markets.

This is according to a research study, ASEAN Insurance Pulse, published on October 30 by business consultant Dr Schanz, Alms & Company and Malaysian Re.

The study carried out 35 interviews with senior executive from regional and internal insurance companies, intermediaries and trade organisations in the Southeast Asian region, and found that 51 percent of executives believe that non-life insurance penetration (premiums as a share of gross domestic product [GDP]) will increase as a result of AEC.

Non-life insurance premiums in the ASEAN markets amount to just 1 percent of regional GDP, around one third of the global average. The lower income ASEAN countries are expected to benefit the most from rising penetration levels, according to the study.

Regulation is expected to play a major role in the process of AEC integration, and 94 percent of executive interviewed consider regulatory differences—in terms of minimum capital requirements, solvency regimes, reinsurance regulations, and insurance and tax laws—as a major obstacle in this process.

By contrast, 86 percent of interviewees said they would welcome a common regulatory framework across ASEAN.

Some 74 percent do not consider AEC a threat to their respective insurance business over the next five years; however, 95 percent expect that liberalisation measures will further add to the degree of competition in the region’s insurance markets.

“The ASEAN Insurance Pulse shows very clearly that the AEC integration is viewed positively by the ASEAN insurance community. The executives polled expect a major boost to their markets through enhanced competition, innovation and governance,” said Kai-Uwe Schanz, chairman and partner of Dr Schanz, Alms & Company, and author of the study.

“Almost half the executives we interviewed believe that AEC will be a positive development for their respective companies in the next five years. Another 40 percent agree in principle, but caution that a five-year timeframe might be too short for such benefits to materialise.

“Nearly two-thirds of the participating executives anticipate AEC to profit their domestic insurance markets at large, as innovation as well as customer awareness and satisfaction are set to improve.”

Almost two-third of interviewees expect ASEAN non-life premiums to grow in line or faster than GDP over the next 12 months. Premium growth is expected to continue outperforming the economy at large in countries such as Indonesia, the Philippines and Vietnam.

ASEAN’s low non-life insurance penetration is seen as its largest medium-term opportunity. The study suggests its rapidly growing middle class is expected to benefit personal lines of insurance, while cross-border expansion—facilitated by integration of the AEC—will create additional opportunities.

“AEC is a huge regional growth project, not least for the ASEAN insurance industry,” said Zainudin Ishak, president and CEO of Malaysian Re.

“In order to capture its full potential AEC depends on the active participation of the corporate sector together with the relevant regulatory bodies.”

Ishak continued: “Towards this aim, the ASEAN Insurance Pulse 2017 will serve as a reliable guide to understanding what insurers, reinsurers and intermediaries expect of the integration and to identify impediments facing the ASEAN insurance marketplace.

“Malaysian Re is committed to improve market transparency and intelligence. This is also reflected in our role as the exclusive partner of the ASEAN Insurance Pulse 2017.”

Two-thirds of polled executives state that current rates in commercial lines are below the three-year average, which the study states is a reflection of current soft market conditions and an abundant supply of reinsurance capacity. The pricing outlook for the next 12 months is challenging, especially for commercial lines, and 57 percent of interviewees expect a continued deterioration of rates over the next 12 months.

The AEC aims to create a single market by 2025 to facilitate the free movement of goods and services—including insurance—among the 10 ASEAN countries.

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