Japanese and South Korean insurers face significant threats on existing portfolios as the population grows older and low birth-rates persist. In contrast, an emerging middle class and millennials in younger Asia-Pacific countries are ahead of their peers in other global regions in metrics as diverse as digital adoption and home ownership.
Insurers must choose the demographics on which they want to focus, while keeping a close eye on the rapidly changing market dynamics.
Slowing growth and rising uncertainty
Low interest rates and failing yields on treasury bonds are challenges common with other regions. And even though central banks have more room to maneuver, a slowdown in other global regions would inevitably hurt the Asia-Pacific insurance industry. Political uncertainty and global trade tensions also threaten the booming growth cycle.
In the fastest-growing markets, insurers have not been able to find the right homegrown talent fast enough. Retraining and upskilling are crucial and expatriate talent is prohibitively expensive. And, as, both life and non-life insurers get more “digital” in their operations, they will need technical talent to design and support specific disruptive technologies.
Key trends: Non-life
In the Asia-Pacific region, growth in non-life and property and casualty (P&C) lines has outpaced life insurance. However, overall growth has slowed in recent years. And foreign players will drive increasing penetration in markets where local players have traditionally dominated.
1. Embrace regulatory change
Larger insurers are seizing the opportunity to transform finance and actuarial functions in relation to tightening regulatory standards, while smaller, less capitalized insurers are making the minimal effort to achieve compliance. But they must look beyond local regulations and stay informed about global regulatory changes, paying particular attention to standards around conduct risk and consumer protection, such as General Data Protection Regulation (GDPR).
2. Achieve cost efficiency
Insurers are currently playing a volume game to generate profitability but slowing economic growth could make that difficult to sustain. Insurers are also implementing regional shared-service centers and embedding straight-through processing to reduce costs and improve process performance. The link between cost reduction and improved use of technology is strong now and will only get stronger.
3. Deliver value with new technology and data
Emerging and disruptive technologies, as well as the massive increase in data volumes, will have a big impact. However, it’s important to note that the trend is very regional, with some markets, such as Hong Kong, lagging behind. Insurers must develop a roadmap of skills that they need in the next three years if they are to maximize their tech ROI and fulfill their ambitions for digital transformation.
4. Digitize the sales force
Distribution patterns and practices vary widely across the region. Asia-Pacific consumers are more receptive to new platforms and better digital tools than those in other regions. But platform and channel integration can be a major challenge. Across sectors, the objective is to engage more customers with the intuitive and personalized experiences they want.
Key trends: Life
Life insurers in most markets in the Asia-Pacific region have experienced slowing growth. Insurers are shifting toward protection-based products, and while a number of common challenges confront life insurers across the region, local conditions differentiate individual markets.
1. Manage the persistent regulatory focus
The coordination among regulatory bodies and increasing standardization of regulatory guidance across the globe are leading to a waterfall effect of best practices. IFRS 17 remains a key focus area, along with customer protection and enhanced transparency. Insurers must understand how compliance can be used to foster innovation and drive product development.
2. Win the war for talent and skills
Asian insurers, like their counterparts in other regions, are focused on finding scarce digital and data science talent. Looking ahead, more Asia-Pacific insurers will look to invest in developing their own talent bases, given that foreign and expatriate resources are more expensive.
The pressure to retool or even transform the workforce is critical for firms actively seeking to diversify beyond plain vanilla insurance products and launch new business models that vertically integrate the value chain.
3. Achieve cost efficiency
Life insurers have been trying to reduce their costs for much of the last decade. But the key is to ensure cost efficiency measures do not stifle innovation.
Process automation and straight-through processing in claims and policy administration are among the priorities, and the ability to set up highly efficient and centralized models has proven to be a strategic differentiator for large insurers with multinational presence in the region.
4. Digitize the sales force
Insurers in the region have made progress in digitizing the workforce in recent years, largely by providing tools for agents to maximize their productivity. Yet ROI on such digitization initiatives has not been as large as hoped, given the size of the investments.
Those insurers that can successfully transform their sales force and effectively digitize distribution channels will seize the promise of higher efficiency and unlock significant growth opportunities.