Playing the long game in Asia

Mapfre Re, the professional reinsurer of Spanish multinational insurance company Mapfre, has long had a presence in Asia. It opened its Manila office back in 1986, only its third after Spain and Mexico.

That has expanded more recently, with new branches in Labuan and Singapore in 2014 and 2015, respectively, and authorisation for its own representative office in Beijing in 2015. (Previously, China business was managed through the primary group, Mapfre SA’s representative office in Beijing.) In 2017 a new representative office opened in Tokyo.

According to Javier Sánchez Cea, Asia-Pacific chief regional officer for Mapfre Re since January, it continues to be a growth region.

“I see a lot of opportunities,” he said. “There are still low penetration rates, and the growth potential of the insurance and reinsurance market is remarkable. China and India’s markets are expected to grow the most, but South East Asia has great potential, too.

“Asia is a fast-growing economic area and insurance, increasing with the middle class, has grown at an even faster speed. “

There are, however, several challenges. As Sánchez Cea told the 1.1 Club, Intelligent Insurer’s online on-demand platform for one-on-one interviews, discussion and debate, there are some tricky discussions ahead in the coming months.

New technology for more efficiency

There are perhaps two key burdens to overcome. The first is the lack of penetration and addressing the protection gap.

It is possible to overstate the problem. On one hand, said Sánchez Cea, non-life market penetration is extremely low—around 2 percent for the whole of Asia, even if there are striking exceptions such as Japan. On the other, property and casualty premiums recently have grown at a combined annual rate of 7 percent.

“There is potential there,” he said. To seize it, however, will require a concerted effort from re/insurers.

Having a local presence is part of that, enabling the reinsurer to listen to what clients and brokers are asking for. That’s been particularly important during the COVID-19 pandemic.

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“One of the many advantages a worldwide network brings is a closeness to our customers,” explained Sánchez Cea. “Now, when international travel is not that easy, we’ve been here and will continue to be, trying to get even closer because we want it to be a real long-term relationship and to understand and grow together.”

It also requires new thinking by insurers. Digital solutions and innovation are necessary to make potentially complicated products more user-friendly and cut costs.

“We have to make sure that insurance coverage is more affordable so it can get to more people,” he said. “The penetration rate will increase by reducing frictional costs and increasing the part of the premium that is devoted to covering risks.”

That’s likely to be done through technology. “Introducing new technology, we can improve efficiency and reduce costs,” he added.

“The role of reinsurance supporting that process is key, by bringing best practices from other regions and other markets.”

Slowly but surely

Cutting costs doesn’t mean cutting prices or loosening terms. There’s been too much of that already in Asia, according to Sánchez Cea. Indeed, another of the uses of technology in the market will be to ensure re/insurers are evaluating risks accurately.

“The re/insurance industry needs to identify, measure and model, wherever possible, the risks properly to charge a price that is sustainable,” he said. Doing so means it will more accurately identify the risks the industry can cover and avoid those it can’t.

“We have to make sure that we are able to deliver on our commitments and promises,” said Sánchez Cea.

As the renewal season continues, the sector must be prepared for some difficult conversations around the risks it is already taking on. Growth cannot come at the expense of profitability, he insists.

“We are a results-driven reinsurer, and profitability is our number one objective,” he said.

Despite hardening starting in the primary market a year or two ago, it has not yet entirely made its way to the reinsurance industry. Even in Japan, which saw rate increases at last year’s renewals, it was only after two years of active typhoon seasons. The rest of the region is still “extremely competitive”, said Sánchez Cea.

“In some markets, the adjustment has started, but in others, we need it to be faster.”

Regardless, it will be a process—the problem won’t be solved overnight.

“We are facing a very challenging renewal given the deterioration in terms and conditions over a series of years. It will be difficult to compensate in just one year. We will have to do it a little by little.

“We come from years of deterioration on profitability, and we have to recover from it.” The difficult conversations, then, start now.

To view the full 1.1 Club interview click here