In this chapter of our Annual Insurance Review 2018, we look at the main developments in 2017 and expected issues in 2018 in Asia.
Key developments in 2017
The soft insurance market across much of Asia has continued throughout 2017, although with a slight hardening on certain lines of business in specific jurisdictions. There has been growth in the purchase of products intended to respond to increasing transnational risks, particularly in the cyber and terrorism sectors.
Cyber security is also becoming increasingly topical. Hong Kong and Singapore in particular are widely recognised as “hot spots” for cyber related crimes. At the end of 2016, the Hong Kong Productivity Council reported a 23% rise in security incidents in Hong Kong. Similarly, the Cyber Security Agency of Singapore recently announced that the number of cyber crimes had nearly doubled between 2014 and 2016.Governments are now responding with new legislation to tackle the threat; 2017 saw the introduction of new cyber security laws in Singapore and China and guidelines from the Hong Kong Securities and Futures Commission (SFC) aimed at reducing cyber risks associated with internet securities trading.
The region experienced a number of natural catastrophes including typhoons in Vietnam and Japan,earthquakes in Indonesia and South Korea (and, more recently, Mount Agung, one of Indonesia’s many active volcanoes, erupted in Bali, leading to the temporary closure of surrounding airspace). In Hong Kong and Macau, the estimated cost to Hong Kong-based insurers of typhoons Hato and Pakhar is in the region of HK$1bn in physical damage and business interruption losses. Although the region as a whole remains highly susceptible to natural catastrophes, comparatively low levels of insurance penetration (by global standards) mean that the losses to the global market from such events are often not as significant as might otherwise be the case.
A new Mediation Bill was passed in Singapore in January 2017. Under the new Act, a mediated settlement agreement can now be recorded as an order of court with the consent of all parties (making the settlement directly and immediately enforceable as an order) and parties may apply to the court for a stay of proceedings pending the outcome of mediation.
The Singapore Civil Law Act was amended on 1 March 2017 to allow for third party funding in arbitration and related proceedings in Singapore. Hong Kong is also seeing more high-profile cases involving litigation funding, mostly in a liquidation context. However, changes are also set to be made to litigation funding in arbitration. The proposed amendments to the Arbitration Ordinance and the Mediation Ordinance will set out the standards and practices that third party funders have to follow, including financial and ethical standards. These changes bring Hong Kong and Singapore into line with a number of other major arbitration centres, such as London and Paris, by permitting third party arbitration funding.
The SFC in Hong Kong has been increasingly using its powers under the Securities and Futures Ordinance to seek redress in civil actions before the courts, often seen as being akin to a class action on behalf of harmed investors. The SFC has made it clear that it sees providing a means of collective redress as part of its remit (given Hong Kong does not have a class action system).
In the construction insurance sphere, there has been a marked increase in claims made by contractors under professional indemnity mitigation extensions under annual or project specific policies, because of the actual or perceived broader cover available. This regional trend, most evident in Hong Kong, mirrors a similar trend in Australia. The wide language in such provisions often allows insureds to claim “expenses necessarily and reasonably incurred” to mitigate a breach of professional duty that would otherwise result in a claim. Insureds are increasingly seeking to bring such claims where a project may have been designed poorly or priced incorrectly.Insurers, in certain circumstances, are therefore essentially being asked to fund a design that is better than the one the parties originally contracted for, subject to the “reasonable and necessary” requirement.
2017 also saw the independent Insurance Authority (IA) replace the Office of the Commissioner of Insurance as the Hong Kong insurance regulator and supervisory body. The IA’s aim is to ensure greater protection for policyholders, while at the same time encouraging the sustainable development of the sector. The introduction of the IA is part two of a three-stage regulatory reform process that, over the next two years,should also see the IA take direct control over insurance intermediaries from existing self-regulatory organisations. The introduction of a new regulator is a significant development for the Hong Kong insurance industry. More efficient and streamlined regulation should facilitate not only the development of the sector as a whole but also the growth and evolution of insurtech. It does, however, mean that insurers and brokers alike may need to consider their internal controls and policies in light of the changes.
The insurtech spotlight has intensified in 2017, with the introduction by the IA of a pilot (or “sandbox”) scheme allowing insurers to test new technologies and products in a controlled environment. Similarly, in September the IA announced a new agreement with the UK Financial Conduct Authority, whereby the two regulators will collaborate through information sharing and business referrals to support fintech innovation.
Download our full Annual Insurance Review 2018 for more insights.