Published on 17 January 2018

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.

The IA and the Hong Kong Monetary Authority have reached a similar agreement with the Dubai Financial Services Authority.
The emergence of these types of agreements is becoming a trend across the region, with regulators in Singapore, Malaysia, the Philippines and Thailand (to name a few) seeking to collaborate with counterparts in other jurisdictions. This reflects the increasing importance of these technologies, which look set to transform the way financial and insurance industries operate in the coming years.
Reinsurers are still coming to grips with the Philippines Insurance Commission’s Directive no. 2016/08 stating that claims control clauses violate section 249 of the Philippines Insurance Code (and are therefore not valid). More broadly, the Philippines has also seen significant growth in the micro-insurance and parametric insurance market, with regulatory changes in this sphere now widely anticipated.
The new class action regime is now in effect in Thailand, but only a handful of cases have been filed to date. Recent legislative changes are also likely to reduce the risk of criminal liabilities for directors. More broadly,restrictions on foreign shareholdings are gradually being relaxed. The Thai regulator has also reiterated its commitment to the relaxation of policy filing and approval requirements, which is likely to take place over the next couple of years. This will enable non-admitted insurers and reinsurers to work with Thai cedants using those (re)insurers’ preferred market wordings.
Following recent legislative changes in Vietnam, compulsory retentions and limits on overseas reinsurance placements have now been amended. As a consequence, foreign (re)insurers operating in Vietnam face greater restrictions in transferring premium to associated companies through overseas reinsurance placements. The new Rules of Arbitration of the Vietnam International Arbitration Centre took effect on 1 March 2017, replacing the 2012 rules. The new rules are primarily focused on addressing cost-related issues and speeding up proceedings.
The new Malaysian Companies Act came into force on 1 January 2017. It aims (among other things) to simplify company incorporation and decision-making, and enhance corporate governance and responsibility. Notably,the Act has introduced tougher sanctions for breaches of directors’ duties, with a new maximum fine of 3m Malaysian ringgit and a 10-year term of imprisonment. The Act has retained previous restrictions that prevent companies from indemnifying their directors in respect of negligence and breaches of duty, and it has introduced new restrictions on companies obtaining directors and offcers (D&O) policies for their directors’liability to third parties. This will undoubtedly have an impact on the already narrow market for D&O insurance in Malaysia.
Many carriers are seeing the Crop Agricultural Insurance Scheme in India as a new and lucrative line of business. However, there appear to be significant risks associated with inflated and fraudulent claims. To tackle these crop frauds, the government is introducing a new online insurance enrolment system.
Changes to the limitation regime in China were introduced through Article 188 of the General Provisions of Civil Law. As of 1 October 2017, the general limitation period for civil claims (relevant to subrogated recoveries) will be three years unless otherwise stipulated by law. This does not affect the limitation period for coverage disputes,which is still two or five years depending on the type of claim for which indemnity is sought under the relevant policy. In an attempt to clean up the industry, the China Insurance Regulatory Commission also launched a new set of rules in January 2017 as part of its efforts against overbearing shareholders, funding term mismatches and risky acquisitions.
What to look out for in 2018
Now that the IA has gone live in Hong Kong, the effect of increased regulation will be felt across the industry and will potentially increase exposure for insurance agents and brokers (who are currently self-regulated).Insurtech also seems set to take off in a big way in Singapore, Hong Kong and across the region generally. In the Philippines, ongoing policies aimed at increasing capitalisation of insurance companies may lead to further consolidation, and the coming into force of the Philippines competition law (and a very proactive Competition Commission) will have an impact on insurance M&A transactions.
More broadly, trade credit, political risk and political violence insurers will be given plenty of food for thought by the risk of tensions escalating with North Korea, on-going disputes in the South China Sea; the continuing risk of a hard landing for the Chinese economy, upcoming elections in Malaysia and Indonesia, and delayed elections in Thailand.
If certain scientific predictions of an increase in the number of large earthquakes in 2018 come true, this could have devastating effects in a region so prone to natural catastrophes. In addition, new technologies coupled with the rising risk of data security hacks and implementation of cyber risk management by companies will fuel current growth in the provision of cyber insurance across Asia.


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