Cyber Insurance
The new year started with news that yet another piece of Australian infrastructure had fallen victim to cyber attack.
On 2 January Reuters reported that hackers had accessed the court recordings database in Australia’s Victoria state and stolen transcripts of hearings conducted between 1 November and 21 December last year.
The Australian government is wise to this increased threat.
At the start of November, it announced an AU$587m cyber security programme which followed a series of attacks on both government entities and private businesses.
The Australian government initiative is expected to boost the country’s cyber insurance sector and the trend is likely to be repeated across Asia Pacific in 2024, according to Munich Re.
The German reinsurer predicts the Asia cyber insurance market will triple in size by 2025 compared to 2023 as governments and businesses in the region pay closer attention to this risk.
ESG
The International Financial Reporting Standards IFRS S1, and its insurance specific subset of rules IFRS S2, came into force on 1 January 2024 but the immediate impact on Asian-listed firms will be minimal.
One insurance industry analyst declined an interview request from (Re)inAsia on the topic saying, ‘there isn’t really a lot happening at the moment’.
The explanation for the analyst’s response is that HKeX has extended the start date for firms listed on the exchange to report their greenhouse gas emissions out to 2025.
This is the same date that Singapore will require large firms trading on SGX to also start making disclosures.
The committee tasked with confirming Singapore’s emissions disclosure framework has yet to confirm this implementation start date.
Even if Singapore sticks to its proposed timeline small firms will not be required to make disclosures until 2030.
“Don’t expect fireworks when the standards come in”, Fitch’s Head of Financial Institutions Research Monsur Hussain told (Re)in Asia in December.
Regulation
While 2023 started with the regulatory bang of IFRS 17 implementation, 2024 begins with more of a whimper.
With only the Philippines Own Risk and Solvency Assessment (ORSA) coming into force on 31 December 2023, most insurers across Asia Pacific started the year without any major regulatory changes to deal with.
Across the region there are only two major regulation changes which are already pencilled in for 2024.
Hong Kong’s switch to a risk-based capital regime is due to come into force in the second half of the year.
While India is trialling a move to a domestic version of global accounting standards in April.
The biggest regulatory unknown for 2024 is how authorities in the region will deal with the rapidly evolving science of AI.
So far China and South Korea are the only Asia Pac jurisdictions to bring AI laws onto the statute book.
But authorities in Taiwan, Australia, Japan, Malaysia, Vietnam, and Singapore are establishing either legislative or supervisory AI frameworks and regulations could emerge over the course of this year.
Artificial Intelligence
It’s not just regulators which are looking closely at AI.
Globally insurance firms are scrutinising the potential gains from the technology, with EY’s Tech Horizon global survey 2022 saying just 1% of firms viewed AI as of no interest.
Given the subsequent media coverage of AI prompted by the success of ChatGPT this figure is likely even lower now.
But according to a 2023 report by McKinsey Asian insurers are lagging their global peers in bringing AI into their businesses.
The consultants said that the combination of: traditional organisational structures, a reliance on multiple intermediaries, and finite in-house tech capabilities meant the region’s carriers were failing to invest sufficient resources into the new technology.
Consultants saying firms should revamp their business processes is an argument that needs to be treated with caution.
But how insurers integrate AI into their business models over the next 12 months will be a key theme of 2024.
Interest Rates
Inflation has been the main macro story of the post-Covid global economy but the rise in interest rates meant to dampen price increases may be ending — for the global economy at least.
The rapid series of 11 hikes by the US Federal Reserve which lifted the global benchmark interest rate to its highest level for 22 years of 5.25 to 5.5% appears to have stopped.
The December meeting of the Federal Open Market Committee kept rates on hold, with the minutes indicating a potential three, quarter point, reductions are likely in 2024.
While Asian economies typically have a strong correlation with the US, the divergent economic outlook in the region’s five biggest insurance markets by premium volume means their rates may not fall in tandem.
South Korea’s finance ministry said in December it was still targeting inflation, following strong final quarter export figures as the country’s central bank maintained interest rates at 3.5%, the highest level since 2008.
The interest rate environment for Japanese carriers will stay challenging as the country’s central bank kept rates in negative territory in December.
Taiwan’s insurers are also unlikely to get relief on the gap between current interest rates and legacy guaranteed products on their books as the country’s central bank maintains a focus on the island’s cost of living.
Conversely, despite China keeping its rates at pat in December, deflationary pressures means economists expect further monetary easing in the region’s second biggest insurance market.
Developments in the Ukraine and Gaza conflicts could impact central banker’s assumptions.
While marine insurers will be alert to threats from the Houthi rebels in Yemen to ships traversing the Red Sea on route to the Suez Canal.
‘Silver Towns’
Asia’s life insurers may be grappling with different interest rate outlooks but demographics in the region could offer potential new business lines for a large chunk of the sector.
A recent Korea Herald report highlighted the growth of insurer-backed ‘Silver Towns’ — care communities aimed at supporting old aged residents.
According to the Korean news outlet the senior care and retirement community sector in the country has been growing at an annual rate of 15.6% between 2018 and 2022.
It is now worth over $11bn a year.
There is significant potential for life insurers in other East Asian states to diversify beyond their traditional product mix.
The region is home to four of the five oldest — by percentage of the total population — countries in Asia.
Cross Border Insurance
In May last year 16 Hong Kong insurers announced they would be offering single motor insurance policies.
These will be covering the use of cars between Hong Kong and Guangdong, via the Hong Kong-Zhuhai-Macau Bridge.
Increased cross border insurance interconnectivity is likely to be a key theme of 2024.
A senior Ping An executive told the Asian Insurance Forum in December that large language models could play an important role in risk managing cross border products on the back of a slew of state initiatives to integrate the two regions’ economies.
Hong Kong Chief Executive John Lee announced a number of measures to integrate health insurance in the Greater Bay Area during his annual policy address in October.
This news followed a data sharing MOU between authorities in both regions.
More activity — at the very least behind the scenes — is likely in 2024.
Alternative Risk Transfer
The return of the El Niño weather pattern will see its first full year in 2024.
The prognosis for Asia is a combination of heightened patterns of drought, storms and floods in the part of the world which is already most exposed to natural catastrophes.
Changing weather patterns across the Pacific are likely to drive an increased use of insurance linked securities and parametric insurance to bridge the protection gap left by indemnity insurance.
In August the Australian regulator encouraged the industry to use ILS in response to hardening reinsurance rates.
HKeX issued its first Nat Cat ILS in March while in July Singapore’s regulator gave a clarion call for an expansion of this asset class in Asia.
“Asia’s ILS market is small but it has good long-term growth prospects”, said MAS Executive Director Lim Cheng Kai.
The next 12 months will put the senior regulator’s words to the test.