COVID-19 created opportunities in cyber and life for re/insurers in Asia

While COVID-19 has caused major economic upheaval in Asia and meant operational disruption to the region’s insurers and reinsurers, it has also created opportunities for growth in some lines, Jessica Pratiwi, senior analyst, Asia Pacific Insurance Group, Fitch Ratings,  told SIRC Today in a video interview for Intelligent Insurer’s 1.1 Club.

Pratiwi said that COVID-19, combined with regulatory changes in some countries, has meant an upsurge in the need for protects around cyber protection and insurance as companies operating increasingly look to ensure they are protected in the event of an attack or outage.

“In that sense, the disruption has fuelled the appetite for cyber protection,” she said.

This dynamic has been complemented by another driver in some countries such as India and Singapore where new regulations have been introduction around data protection. Companies that breach these new laws are potentially subject to large fines, and are seeking insurance to cover such challenges.

“A combination of companies understanding the potential losses from business interruption and regulatory penalties is driving demand,” Pratiwi said.

A second area where insurance demand has been boosted by the pandemic is life and health insurance. “There is now a much greater awareness of the importance of having appropriate health insurance protection as a result of the pandemic. That has driven demand.”

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A spectre at the feast

Catastrophe events and losses represent the other major topic for insurers and reinsurers in the region. The spectre of climate change overarches any conversation around this but, in Asia, the conversation is especially focused due to the region’s vulnerability to such events.

Pratiwi notes that the Asian region has seen a significant number of catastrophe losses in 2021; economic losses amounted to $85 billion for 2020 and Q1 2021, and a protection gap of more than $50 billion.

She said this represents an opportunity for re/insurers but there is also a challenge in the region around developing catastrophe models and tools that are robust enough and accurate enough to offer re/insurers the reassurance that they have a handle on the nature of the risk, especially in the context of climate change. “Risk models are a challenge in the region,” she said.

This also filters into negotiations around pricing and terms and conditions. Pratiwi said pricing has held up well in the region, driven partly by firming rates globally. But re/insurers are aware that pricing and terms and conditions must be sustainable and many are willing to cut capacity or decline business if they do not achieve adequate rates.

Part of the solution to this could be a growing insurance-linked securities (ILS) or cat bond market in the region. She said there is growing interest from both investors and issuers and the landscape has been boosted by regular ILS issuances in the past year from Singapore, using its relatively new regulatory regime designed to boost ILS in the region, which is subsidised until the end of 2022.

Pratiwi expects there will continue to be new deals issued under that regime. Meanwhile, Hong Kong has moved to create its own ILS regulatory framework, which was unveiled in March 2021. She believes the two hubs can help drive the growth and use of ILS in the region which will, in turn, help the way cat business is managed in the region.

Against this backdrop of change, opportunities and challenges, Fitch has a stable outlook on the re/insurance industry in the region. This is driven by the positive pricing being achieved in the region and some of the robust capital management strategies many re/insurers have adopted during the pandemic.

To view the full 1.1 Club interview click here