Asia offers “immense growth opportunities” for insurers, but providers should also consider challenges including catastrophe risk, longevity risk and retirement security risk, says a senior figure at the Monetary Authority of Singapore (MAS).
Speaking at a conference on 25 June 2012, Ng Nam Sin, assistant managing director of the development group at Monetary Authority of Singapore explained that although gross premiums in Asia ex-Japan have increased by about 16% per annum from 2005-2010, Asia remains under-insured.
He also stressed the importance of a keen understanding of the risks facing Asia.
Ng said: “The very first one is catastrophe risk. 2011 was the costliest year for the insurance industry in terms of catastrophe-related losses, which totalled an estimated US$110bn. The events in 2011 clearly highlighted the vulnerability of Asia to natural catastrophes.
“Of the string of natural catastrophes that wrecked the world, the three costliest events took place in Asia Pacific – the earthquake and tsunami in Japan, with insured losses estimated at US$35bn, the floods in Thailand, with insured losses estimated at between US$15-20bn, and the earthquakes in New Zealand with insured losses estimated at US$14bn.”
Ng said these recent events have also called in question previously held assumptions on catastrophe risk in Asia. For example, Thailand had previously not been viewed as a catastrophe-risk zone.
Longevity risk is another issue facing insurers in Asia, said Ng.
“People in Asia are living longer. United Nations statistics show that the average life expectancy in Asia Pacific countries has increased by about 14-16 years over the last 3 decades. In more developed Asian economies, the population is also ageing.
For example, in Singapore, the elderly currently makes up 10 per cent of the population but the rate of ageing is expected to rise six per cent each year from 2012 to 2020.”
He added that there is a growing retirement security risk in Asia arguing that most state and corporate pension systems in Asia remain insufficiently developed or inadequate.
Ng said the insurance sector has responded to the demand of individuals by offering innovative retirement products such as variable annuities, asset preservation products, reverse mortgages and inflation-linked bonds.
“While doing so, there is also a greater need to manage the new risks that they are taking on, which include some harder-to-manage and unpredictable risks such as volatile market risks and longevity risks.
“In addition, individual awareness and responsibility for retirement security remain low, and not all of these retirement risks can be transferred through the use of financial products.”
Ng concluded by saying that as insurers position themselves to tap Asian growth, a sound understanding of the evolving risk landscape in the region must be developed.
He said: “To this end, research has an important role to play in providing thought leadership on Asian risk and risk management. Singapore, as a leading insurance centre, is well-placed to support these efforts.”