A recent Swiss Re opinion survey in 12 Asia Pacific shows emerging Asian countries have a higher need for insurance coverage (56 percent) than more developed economies (20 percent). It also found the COVID-19 pandemic has left many people feeling underinsured and looking for more protection. More than 30 percent of respondents have underwritten complementary life and health insurance during the crisis, while more than 25 percent are considering underwriting new policies.
The Natural Disaster Insurance Gap
Asia's lack of insurance protection is also being exposed by increasing climate change-related humanitarian disasters. For example, the floods in the central Chinese province of Henan last year resulted in an overall loss of $16.5 billion—only 10 percent of which was insured.
According to the Munich Re Group, Asia Pacific has a natural disasters insurance gap of 83 percent against the global average of 57 percent. It estimates that overall losses due to natural disasters amounted to about $50 billion in 2021, of which only 18 percent was insured.
In developed nations, insurance is readily available and appropriate, so it becomes almost a given. But in developing nations, it’s not as accessible. And the problem with significant insurance gaps like these is that they place a massive burden on the public and private sectors of developing economies to provide aid in times of crisis.
Moreover, with natural disasters occurring increasingly frequently in the region (most of Asia is exposed to extreme weather such as typhoons and flooding,) some economies may never get the chance to recover.
Why Do Such Gaps Exist?
One reason for the high insurance gaps in Asia is a lack of awareness of insurance benefits for individuals and countries. The second is a relatively low average disposable income compared to developed nations—the general population can't afford insurance.
Lastly, alternative capital sources like insurance-linked securities and catastrophe bonds are not as common in Asia as they are in the West. This impacts the amount of capital available to underwrite risks in the region.
Demand for Insurance Is Growing
Asia Pacific’s rapidly growing middle class has triggered a boom in insurance over recent years. As people become wealthier, they acquire more possessions and buy more insurance. For example, general insurance premiums in mainland China rose 13 percent annually from 2013 to 2017.
Higher living standards also mean improved access to medical care, which in turn creates a demand for health insurance. And there is a growing desire to protect family living standards for future generations. For example, over the same period of 2013 to 2017, China’s life insurance market grew by roughly 25 percent a year.
However, despite changing demographics, the protection gap isn't being closed swiftly enough to keep pace with evolving risk conditions in Asia.
Public-Private Partnerships Offer Potential
The increase in demand for insurance also coincided with deregulation in major markets like China and India that reduced barriers to foreign ownership and allowed multinational insurers to trade in Asia. Insurers play a pivotal role in bridging the region’s protection gap, but government support is also critical. Asian governments will need to work through public-private partnerships with insurers to structure schemes that minimize fiscal volatility from natural disasters while mobilizing aid.
And without access to comprehensive and timely data, insurers risk their profitability and capitalization if they price products incorrectly or fail to acquire sufficient reinsurance protection. Moreover, each country in the region has unique characteristics, so there's no one-size-fits-all strategy for insurers.
For example, products suitable for mature markets like Japan and Australia aren't appropriate for developing markets like Malaysia or even for booming markets like China. And markets like Hong Kong and Singapore exhibit hybrid characteristics.
Digital Technology Offers Innovative Strategies
Incumbent insurers must also contend with new, digitally-enabled entrants like insurtechs, technology firms, retailers, and others from outside the industry. These new entrants can leapfrog conventional insurance providers in fast-growing, novel digital markets because customers can easily compare product offerings. In addition, they don't have any entrenched brand loyalty and are very receptive to new ideas and players.
In many Asian countries, regulators are encouraging the digital disruption of the insurance industry. Singapore and Hong Kong, for example, are providing government-funded incubators for “sandboxing” new technologies. And as of 2018, venture capitalists had invested almost $4 billion in Asia Pacific insurtechs.
The rapid digitalization of the region has increased access to e-commerce and increased insurance take-up. Online sites selling insurance directly to the public have significantly lower cost structures than traditional insurers.
But technology also enables new, innovative products such as microinsurance—low premium products with limited coverage that appeals to lower-income populations. Examples of microinsurance include transit loss of online purchases and income loss due to specific events such as COVID-19.
Access to "big data" is also making it possible to accurately price increasingly specific products, for example, to switch motor vehicle insurance to a usage basis or to ensure travelers against reserved accommodation not being available or meeting expectations.