Asia

In this chapter of our Annual Insurance Review 2024, we look at the main developments in 2023 and expected issues in 2024 for Asia.

Key developments in 2023

Insurance premiums

Despite variations across insurance lines and regions, overall, insurance premium rates remained broadly flat across Asia during Q1-Q3, notable exceptions being China and Hong Kong, which have reportedly seen a reduction in rates this year.  The financial and professional lines markets (including Directors and Officers insurance) have started to soften, however, with premiums decreasing overall, more noticeably during the second half of the year.  Cyber insurance premiums on the other hand continued to increase during 2023, albeit more slowly than in 2022.

Cyberattacks

Asia continued to experience a significant increase in cyberattacks, with the World Economic Forum reporting that APAC was targeted more than Europe and North America during Q1 of 2023, and experienced by far the largest year-on-year increase compared with other regions.  The reasons are thought to include rapid digitalisation, a new generation of users, hybrid working, increased use of cloud storage and file-sharing platforms, and a large manufacturing industry forming an attractive target.  However, although the severity and sophistication of ransomware has increased, in many cases so have companies' cyber security controls and risk management procedures; this likely explains why the first half of 2023 saw a reduction in the number of cyber claims in the region.  Demand for cyber insurance remains high, however, driven not only by the high number of attacks but also by increased regulation.

Inflation

Following the highest rates of inflation in more than a decade during 2022, rates across Asia moderated slightly during 2023, tracking below those of Europe and the US.  At the time of writing inflation across Asia remains above pre-pandemic lows, and its impact is still being felt.  Against this backdrop non-life reinsurance rates have increased, especially in areas affected by natural catastrophe losses (see below); this has led some insurers to retain more risk on their own balance sheets.  To counter higher inflation some Asian central banks have raised interest rates which may have increased investment returns for insurers, thereby reducing the impact of inflation on underwriting results.  Higher inflation is expected to remain a factor across Asia during 2024.

Extreme weather events 

Asia lived up to its reputation as one of the world's most vulnerable regions for natural catastrophes.  Among various extreme weather events hitting the region, Typhoon Doksuri swept through Beijing in July, leading to the heaviest rainfall since records began 150 years ago, as well as significant flooding.  The resulting damage, combined with additional monsoon rainfall, led to economic losses in excess of USD 15 billion, with insurers reportedly paying out more than USD 1 billion.  Japan also experienced heavy rains from Typhoon Mawar, as did Hong Kong from Super Typhoon Saola.  These and other extreme weather events have continued to contribute to property catastrophe treaty reinsurance rates remaining hard in the region and beyond.

What to look out for in 2024 

Artificial intelligence  

Although there is significant variation in "AI maturity" across the Asia insurance market, we anticipate increased interest from insurers in how AI can help to improve underwriting, in particular risk assessment and pricing models, the goal being to improve loss ratios.  AI is already being used to improve interactions with customers (think, personal recommendations, chatbots, quicker purchasing times) to customise products better and more quickly, and to analyse patterns within large data sets in order to detect fraud, all of which looks set to continue.  AI is also expected to play an increasing part for insurers in analysing changing regulatory requirements, as well as in respect of claims processing.  Insurers may also increasingly look to partner with external data providers, and to make more use of the data which they themselves generate.

FinTech insurance

Following on from the increased adoption in AI, and associated advances in the FinTech industry, we anticipate increased demand for and provision of FinTech insurance products across Asia, especially in the financial centres of Singapore and Hong Kong.

Construction

We expect that the demand for new infrastructure across Asia will continue into 2024 as governments continue to invest.  This may prompt more insurers to increase capacity in the Construction (All Risks) space and ultimately may lead to some softening of rates (which have remained stable through 2023).  Insurers are, however, likely to remain cautious over the short term: projects may continue to be hampered by ongoing materials and labour shortages and, with construction costs remaining high, claims inflation currently remains a concern.

Reinsurance 

In the reinsurance sector we anticipate further premium increases, against a backdrop of continued elevated extreme weather events as well as instability driven by geopolitical events such as the war in Ukraine.  Conversely, catastrophe bond activity is likely to increase as (re)insurers seek to transfer their catastrophe risk to the capital markets.

Political risk insurance

The demand for political risk insurance may increase with national elections due to take place across the region in India, Indonesia, South Korea and Taiwan.  In the light of election results during 2023 that were unexpected by many, organisations may look to protect themselves against potential instability and uncertainty arising from forthcoming elections in the region.

Warranty & indemnity insurance

Following a decline in M&A deal volumes globally during 2023 there has been a consequent decline in take-up of W&I insurance in Asia.  This has coincided with an increase in market underwriting capacity in the region, with a number of MGAs coming online.  As a result, with more players chasing fewer deals, premiums for the product have decreased significantly and coverage has widened to make a very buyer-friendly market.  Most underwriting activity has been on deals in India during the period and Japan has been increasingly busy.  Some smaller markets, including Thailand and Vietnam, experienced increased M&A deal activity such that overall South East Asia saw a 4% year-on-year increase during 2023.  There is a general market expectation that deal volumes in China will recover somewhat during 2024.  Hong Kong and Singapore in particular are expected to experience increased deal flow, making up for the bottlenecks in recent years.  If so, a similar recovery in the take-up of W&I products should follow, particularly as the product is becoming more widely understood and utilised in the region.

Written by Chris Alderton.