Asia-Pacific: a diverse region with diverse challenges

The Asia-Pacific insurance landscape is contending with mounting challenges, from soaring loss-costs due to climate-driven catastrophes, to regulatory shifts and market demands for affordable coverage. 

Aon’s Reinsurance Solutions CEOs across Asia-Pacific told SIRC Today about the challenges and opportunities in their respective regions, as they continue to support clients with innovative products and analytics while meeting escalating demands for sustainable, cost-effective coverage.

John Carroll, chief executive officer Australia and New Zealand

“Increasing reinsurer margin requirements have contributed to a significant uplift in insurance premiums.” John Carroll

Rising loss-costs from the increasing frequency and severity of weather-related claims, inflationary claim impacts—from disaster scenarios as well as attritional claims such as motor—and increasing reinsurer margin requirements have contributed to a significant uplift in insurance premiums in recent years that have put insurance affordability high on the political and public agenda. 

With the advances in data, analytics and risk assessment at a location level, the affordability crisis then impacts those who have a disproportionately greater need for insurance.  

This, in turn, is leading to increasing levels of non- and underinsurance in some areas of the market, which is inviting discussion in the industry and political circles about how these affordability concerns are best addressed.

The challenge for the industry is to find ways to provide insurance coverage to more risks while, at the same time, generating profitability at a portfolio level.  

Addressing this challenge becomes our largest growth opportunity—finding ways for re/insurers to bring the full suite of capital solutions to underpin the risks.

Richard Jones, chief executive officer Asia

There are some common themes to the challenges being faced by insurers across Asia. Climate change continues to be a dominant concern, and Typhoon Yagi produced an estimated 1-in-60-year loss to the Vietnam market in early September. 

The category 5 storm was one of the most intense typhoons to hit Vietnam, and current market loss is estimated at around $400 to $500 million. 

“ESG issues remain firmly on the agenda.” Richard Jones

There will be more scrutiny around the Vietnam 1/1 renewals, and our analytical team will be working closely with our clients to analyse renewal data to ensure optimum renewal terms and drive better business decisions. 

Environmental, social and corporate governance (ESG) issues remain firmly on the agenda, and securing adequate capacity for fossil-fuelled power plants continues to be a challenge throughout Southeast Asia. 

Our facultative teams are seeking innovative ways to help clients during this challenging period of transition.

Regulatory pressures continue, with Indonesian insurers facing increased capital rules as well as having to implement IFRS 17, which is creating a strain on resource and expense. 

Similarly, Korea is adjusting to IFRS17 and risk-based capital (RBC) challenges, and Malaysia is looking into RBC2. 

Our Capital Advisory team and Strategy and Technology Group are assisting clients to navigate this evolving environment across the region.  

Another area that is producing challenges is electric vehicle pricing in certain Southeast Asian markets—in this regard, we are working with reinsurance carriers to seek solutions.

Philippe Sommer, chief executive officer Japan

Despite a number of benign catastrophe years, Japanese clients have encountered tough challenges from tightening reinsurer appetite and capacity, and significantly increased prices. 

Aon is putting its extensive analytics capabilities and broking resources to work to allow reinsurers to understand the market opportunity and take on more risk again, at competitive terms. 

Aon is supporting clients with product-specific insights and customised models, to bring clarity and confidence to transactions, articulate unique business features, differentiate portfolios, and deepen holistic reinsurer relationships.

In the commercial property and casualty sector, cedants continue to implement a string of underwriting, price, and terms and conditions adjustments, aligning to their commitments to make the business more profitable again for all market participants. I

In addition, underlying market practice changes are supporting these efforts and present opportunities for reinsurers to deepen their engagement.

“Aon is expanding its local, dedicated resources to develop new insurance products.” Philippe Sommer

According to Aon’s “2024 Climate and Catastrophe Insight” report, in 2023 only 31 percent ($118 billion) of economic losses ($380 billion) were covered by insurance. 

While this 69 percent global protection gap is at a somewhat lower percentage in Japan, there continues to be a massive opportunity to increase insured risks. 

Aon is expanding its local, dedicated resources to develop new insurance products with clients and reinsurers alike—for example in the natural catastrophe, parametric, offshore wind, casualty/speciality, and mortgage areas—that can help them to achieve profitable growth.

Qin Lu, chief executive officer Greater China

China’s decelerated economic growth presents the biggest challenge to the industry, as it may constrain insurance demand. 

The effect of the stimulus package recently introduced by government has yet to be tested, but the industry’s year-to-date performance has been satisfactory, and not significantly affected by major catastrophe events such as Typhoon Yagi or heavy storms. 

Terms and conditions in the primary market remain at the stable level of previous years. Reinsurance capacity in the market is sufficient, resulting from an overall good performance during this cycle. 

For the upcoming renewal, cedants may expect to optimise rates that have stabilised at a high level and/or to adjust their increased retentions. 

Hong Kong insurers embraced formal implementation of the RBC regime in Q3 this year, which raised the standard for capital management as well as risk management. 

As a result, insurers may need to reconsider their portfolios and reinsurance arrangements to achieve optimal balance between capital and risk. 

“The industry demonstrated impressive resilience and recovery capabilities.” Qin Lu

Hong Kong insurers enjoyed a year with very limited major loss events. They enter the renewal with expectation of improved terms and conditions amid sufficient reinsurance supply. 

The continuous rise in reinsurance rates over the past few years has placed significant pressure on the operations of Taiwan cedants. While catastrophe risk is a real major threat, as evidenced by the Hualien earthquake in April this year which caused nearly $1 billion in insured loss, the industry demonstrated impressive resilience and recovery capabilities. 

The local cedants maintained good underwriting discipline post-event. Conservative business strategies and sufficient risk diversification mechanisms remain in place, and in terms of medium- to long-term experience, Taiwan’s catastrophe reinsurance market still enjoys good profitable results. 

Based on the solid performance demonstrated, the international market should continue to provide sufficient support to the Taiwan market in terms of capacity and pricing.

A common theme for the Greater China insurance industry is the escalating threat from extreme weather events. Frequency and severity have both deteriorated in recent years, and Aon sees parametric re/insurance as an effective solution as well as a possible profitable growth area.

Shailendra Sapra, chief executive officer India

India is a dynamic market, with a regulator involved with insurers to increase penetration levels across all lines of business and design new insurance products to address a significant protection gap that exists in the market. 

“There is a mismatch between consumer demand and the products offered.” Shailendra Sapra

Around 63 percent of the population is based in rural areas, where the penetration levels are extremely low because of limited reach by insurance companies, as well as challenges around affordability. There is a mismatch between consumer demand and the products offered, and various government-driven disaster schemes are already in place. 

Insurance companies are trying to use technology to drive solutions to cater to this rural demand. In urban areas, with increased economic activity, we are seeing new insurance programmes being bought; re/insurance supply remains more than adequate. 

Increased insurance capacity has led to pressures on the direct insurance rates for property, and major insurers are thus looking to rebalance their portfolios to ensure profitability. 

Cyber and surety lines of business are seeing increased demand from insureds, and will drive profitable growth. Medical inflation remains a challenge for health insurers, and we are seeing rates increasing to cater to this change. 

We have seen significant improvement in mortality experience post-COVID-19, which has led to a softening of rates this year and increased reinsurance capacity coming into the market. 

This increased capacity is welcomed, with the expansion of the government schemes for both life and health insurance, and strong organic growth in demand.

Many of our clients are facing challenges with their IFRS 17 implementation journeys because of a lack of trained local capacity in the market. 

RBC implementation remains a key priority for the regulator, and insurers are trying to understand its impact on overall capital in the market with concept papers being released. Aon’s teams, such as Capital Advisory and our Strategy and Technology Group, are here to assist, and help drive better decisions. 

John Carroll is chief executive officer Australia and New Zealand, Aon’s Reinsurance Solutions. He can be contacted at: john.carroll@aon.com

Richard Jones is chief executive officer Asia, Aon’s Reinsurance Solutions. He can be contacted at: richard.jones@aon.com  

Philippe Sommer is chief executive officer Japan, Aon’s Reinsurance Solutions. He can be contacted at: philippe.sommer@aon.com 

Qin Lu is chief executive officer Greater China, Aon’s Reinsurance Solutions. He can be contacted at: qin.liu@aon.com 

Shailendra Sapra is chief executive officer India, Aon’s Reinsurance Solutions. He can be contacted at: shailendra.sapra@aon.com 

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