Asia Pacific offers growth and diversification

Rapid economic development, population growth and urbanisation, along with increasing insurance penetration, mean that over time there will be significant opportunities for insurers in Asia Pacific, George Attard, head of Aon Benfield Analytics, Asia Pacific, told EAIC Today.

However, he added, in the short term the major focus will be improving information and developing tools, techniques and expertise so that the industry has a better understanding of the potential impact of various risks on the region and is able to mitigate them via reinsurance or other means.

“The events of 2011 such as Thailand flood busted the myth of cat-benign territories and highlighted the importance of non-modelled perils,” Attard said. “Since that time there has been a greater focus on building a modelling suite as one key tool to allow insurers to better understand the impacts of those perils.”

To this end, Aon Benfield is highly focused on bridging the modelling gap in the region through its catastrophe model development centre of excellence, Impact Forecasting. It released its Thailand flood model 2012 and since then has been developing other tools including Realistic Disaster Scenarios (RDS) and fully probabilistic models, including a Singapore and Pakistan earthquake RDS, Vietnam, China and Indonesia flood RDS and a Malaysia flood model. Tools for other perils such as riot and volcanic ashfall have also been developed.

“We also have a whole development pipeline that will help us bridge any gaps,” added Attard.

He said that a key challenge facing insurers in the region is the need to grow their portfolios while maintaining profitability and managing catastrophe risk.

“It’s a matter of developing a corporate resilience strategy in order to effectively manage those events that can have a real impact on the solvency of the companies,” he said.

In addition, a number of other factors are at play in the market, notably regulatory change across the region, which is affecting a number of markets, impacting solvency and the way in which insurers are looking to structure their reinsurance arrangements in Asia.

“We also have the effect of the ASEAN free trade agreement to consider. It is aiming to open up cross-border trade across the 10 south east Asian territories, so it will be interesting to see how this impacts the dynamics of the insurance industry.

“However, in the short term, the key reinsurance considerations will remain around structuring an appropriate reinsurance programme to provide capacity to write large commercial risks and also to provide appropriate protection against the uncertainty of catastrophes.”

He said that commercial and industrial risks dominate property portfolios in Asia. Japan and Australia account for the lion’s share of catastrophe cover purchased, indicating a significant growth opportunity in other parts of the region.

While growing awareness of insurance, coupled with increasing urbanisation and wealth, creates the potential for significant organic growth, there is also opportunity for development in specialty lines and product innovation.

“We also need to consider other product lines,” he added. “While catastrophe insurance will increase over time, with the rise in insurance penetration there is also the potential to create products for other classes of business such as agriculture and other specialty lines.

“For example, China is now the second biggest agricultural market globally after the US and demonstrates the potential opportunity in the region; beyond that we have the possibility to create products for emerging risks such as cyber.”

The role of RDS

In a separate statement published during the EAIC, Aon Benfield said that the importance of the new RDS models developed by Impact Forecasting has been brought into sharp focus by some of the catastrophic events in Asia in recent years. These include the 2011 Thailand floods, which caused $16 billion of insured losses, and last month’s seasonal rains which produced flooding across parts of Thailand, China, India and Pakistan resulting in more than 800 fatalities, damage to 600,000 structures and combined economic losses in excess of $20 billion.

Adityam Krovvidi, head of Impact Forecasting for Asia Pacific, said: “Data is at the heart of these models. We’ve gone the extra mile to gather the most comprehensive data on flood hazard and defences through field surveys, liaison with government departments and investment in high quality data, for example, digital terrain data at a 5m x 5m resolution in Vietnam.

“These RDS models are part of a much bigger plan that already includes numerous RDS across a wide range of perils such as earthquake, flood, volcano and riot. While we are in the process of expanding our probabilistic model coverage for the region, the realistic disaster scenarios offer a breadth of Asian coverage.”

Malcolm Steingold, CEO of Aon Benfield, Asia Pacific, added: “Speed of development is essential. These models are vital to help insurers and reinsurers take advantage of the additional capacity in the market and help transfer flood risks.

“Notably, this can also provide new opportunities for government schemes to explore how they can further support their people in times of catastrophic events.”