FIRST Ed Majkowski, Peter Manchester, Lorenzo Fattebene, and Anna Huyronovich. “In the Asia-Pacific region, the short tailed nature of insurance products in many markets gives insurers increased ability to reprice policies quickly, thus correcting for inflation and partially compensating for depleted reserves,”EY said. Firms that outsource key parts of the value chain, such as investment management, IT services, will certainly feel an additional pinch, they warned. Amongst segments, non-life insurers are likely to realise the positive effects on investment income more quickly, as they maintain relatively short-duration portfolios. If the interest rates remain high, long-term returns will also improve because bond portfolios gradually will roll over into higher yields.
NATURE'S FURY FUELS INSURANCE DEMAND PROPERTY
F
loods and fires are driving more consumer awareness and take-up of property insurance in Southeast Asia. In Malaysia, for example, the country’s high exposure to natural disasters has pushed up consumer awareness on this segment. Currently, property insurance make up the the second largest line in Malaysia’s general insurance market, accounting for a 24.6% share of the general insurance direct written premiums as of 2022. Malaysia’s property insurance market is expected to grow by a further 6.7% in 2023, driven by an increase in residential and commercial construction activities. “The country’s high exposure to natural disasters during the last few years, especially floods, has played a pivotal role in increasing consumer awareness of property insurance,” said Sutirtha Dutta, insurance analyst at GlobalData. Reacting to the increasing demand, insurers are providing flood coverage under comprehensive fire policies, which will support property insurance growth, Dutta added. As a result of this, property insurance in Malaysia is expected to grow at a compound annual growth rate of 7.7% between 2022 and 2027. In Singapore, compulsory fire insurance is propping up its real estate insurance market. A major factor for the growth is that fire insurance is required when purchasing homes from the Housing and Development Board (HDB) and taking home loans. Singapore's property insurance industry is project to be worth S$1.5b (US$1.1b) by 2027, growing at a compound annual growth rate of 8.7% from S$1b (or US$700m) in 2022. Adequate reinsurance coverage will also help Singapore property insurers to remain profitable in 2023. 6 INSURANCE ASIA
EY analysts advised insurers to look out for opportunities in the InsurTech space
Protectionism, inflation weigh on insurers VALUATIONS
I
nsurers will need to be more nimble in their decision-making if they wish to cash in on the earnings tailwinds from higher interest rates. Whilst the higher interest rates may provide a boon for insurers’ earnings, they also face balancing out customers’ difficulty to pay their premiums as they adjust up their pricing. The year of 2023 thus far saw insurers face a triple whammy of high inflation, high interest rates, and increased protectionism. “This isn’t the first inflationary environment the insurance industry has had to navigate, but it is shaping up to be one of the most difficult. Whilst inflation and recession will hurt insurers in the form of higher claims costs and reduced demand, higher interest rates may provide an earnings tailwind, thanks to improved investment returns,” Ernst & Young (EY) noted in their outlook report. But those returns will require brave decision making, careful hedging and timely refinements to asset and liability management (ALM) policies, said the reports authors: Isabelle Santenac, Anita Sun-Young Bong,
Isabelle Santenac
Anita Sun-Young Bong
[This inflationary environment] is shaping up to be one of the most difficult
Higher interest equal higher yields Life insurers are expected to benefit from the discounted values of liabilities. Furthermore, if interest rates remain high for the longer term, this may lead to interest in guaranteed income products treading higher, according to the EY report. However, the likely outflows of customers moving into guaranteed income products, which require more solvency capital, must also be taken into account. “The hit on demand and retention could also be significant, with more consumers lowering coverages, increasing deductibles or deciding they can no longer afford insurance. Some competitors may increase guarantees to gain market share despite the volatility,” EY said. InsurTech in doldrums The InsurTech space is another segment experiencing some price corrections. In the US, for example, EY noted significant drops in InsurTech valuations. Globally, funding to InsurTechs have fallen by 41% in the first half of 2022 to $4.8b, from $8.2b in the first six months of 2023. The EY analysts advised insurers to look out for opportunities in the InsurTech space, which apart from being a source of competition has been noted as a source of innovation.
