Most, if not all multinational companies’ current growth strategies are centering around expanding and growing their Asian operations. When sales in Asia for companies such as Apple exceed 30 percent of total sales numbers—more than from Europe and almost the same as the Americas—at growth rates of three to four times that of the other markets, you realize the importance of the Asian markets on the world stage.
The life insurance market is no exception to these rapid growth trends. Indeed, the many and varied dynamics of the market and region have made it, and are continuing to make it, extraordinarily attractive for life insurers and reinsurers alike. In this article, we will explore some of the Asian market’s dynamics and key trends, and how insurers are repositioning for the future.
Snapshot: Asia's Insurance Market
Asian countries comprise five of the top 10 life insurance markets worldwide. As Figure 1 shows, life insurance sales in most of the developing and emerging economies have been outpacing their GDP growth since 2010. In constant 2010 USD terms, GDP growth for these countries has been between 3 percent and 8 percent. Life insurance sales, meanwhile, have been grow-ing at a rate of between 5 percent and 16 percent—much faster than in many developed countries worldwide.
Figure 2 lists the 10 largest life insurance markets by life insurance premium and subsequent life insurance penetration rates. It highlights not only the size of some of the Asian markets (considering also that Hong Kong is currently in 11th place), but also the significant growth opportunities, especially for China and India. Exploring this further by overlaying the size of the life insurance market on population sizes of the respective countries (Figure 3), it further highlights the potential growth for the Asian markets.
The mature and stable markets of Japan, Korea and Taiwan with their aging populations, slower overall economic growth, and plethora of regulations, are presenting unique opportunities for the insurance industry—opportunities to provide innovative protection and cover for elders and families as well as a wide range of financial and capital solutions.
Hong Kong and Singapore, with very favorable market, economic and regulatory environments are sparking significant innovation, as insurers seek new ways to protect individuals who have traditionally lacked cover as well as provide protection to their fast- growing high net worth and elder markets. Meanwhile, Indonesia, Malaysia, Thailand and the Philippines are experiencing very different trends—mainly, rapid population growth and urbanization—which are yielding different sets of protection needs.
Then there is China, currently the most populous country in Asia. Its economic and demographic trends have characteristics in common with many of Asia’s varied markets: rapid aging, urbanization, population growth, and slowing GDP growth . . . and all are advancing at breakneck speed.
Asia’s current economic and demographic dynamics indicate excellent opportunities, especially in developing and emerging markets, for life insurers and reinsurers in the next 10 years. However, like much of the world, Asian countries are facing not just rapidly aging populations and a fast- growing middle class, but also the effects of nearly 10 years of low interest rates and increased regulatory scrutiny stemming from the implementation of International Financial Reporting Standards, and of Solvency II and other risk- based capital regimes. These are presenting Asia with many new financial challenges while opening up the potential for a diversity of new financial and capital solutions.
We are currently observing four key trends in Asia:
- Rapid pace of product development, especially for critical illness and health insurance products, with a focus on aging populations;
- focus on innovative underwriting solutions;
- wellness, with a focus on covering impaired lives; and
- the rise of InsurTech, health care startups and other third- party service providers such as disease management providers.
Rapid Product Development
Although life insurance in Asia is still dominated by savings and investments products, protection benefits are increasingly becoming an even more integral part of all insurance portfolios and solutions. Providing more flexible and reliable solutions to address the challenges and opportunities presented by aging populations is becoming imperative.
Product development, especially in critical illness, is occurring at a blistering pace. Hong Kong insurers alone have launched more than 30 new critical illness products in the last two years, ranging from simpler policies that cover only the four tradi-tional critical illnesses (heart attack, cancer, stroke and coronary artery bypass surgery) to complex multi- pay products that cover more than 100 conditions.
Several factors are creating the financial pressures driving this rapid development:
- Better screening tests, diagnostics, treatments and other medical advances are lengthening lives, which is resulting both in higher populations and more older Asians living with age- related chronic and critical illnesses.
- Government- driven wellness initiatives, such as Singapore’s diabetes awareness campaign and Korea’s thyroid screening program, are yielding both more discovery of disease conditions and greater health awareness.
- More adults are caring for their parents, which is showing them the financial impact of critical illnesses and making them more inclined to buy critical illness for themselves.
- High and rising long- term care costs of diseases such as stroke and cancer, coupled with the impact of loss of income on survivors and their spouses, are generating severe consequences:
- Non- direct medical and non- medical needs costs are much higher than medical costs;
- cancer survival rates are high and rising (five- and 10-year rates are now 70 percent and almost 50 percent, respectively); and
- stroke is a leading cause of long- term disability, especially in survivors over age 65, and up to 80 percent of its long- term costs are non- direct medical and non- medical
All of these factors are significantly raising the financial pressures associated with dealing with critical illnesses and protecting individual’s current and future standard of living, both in terms of direct and indirect medical costs and the lifestyle impact of loss of income. Some new treatments and tests are still expensive but reducing quickly, but as novel treatments emerge and lifespans continue to increase, overall costs are unlikely to drop soon.
Asian insurers are introducing critical illness policies as well as riders on savings policies that offer greater flexibility for comprehensive protection and wealth management. New policy features and options include cover for continuous cancer, reimbursement of medical costs for diabetes, cancer and stroke, and a whole life long- term care benefit that does not require medical underwriting.
They are also investigating ways to expand the ability to sell critical illness to impaired individuals who, in the past, might have been turned down due to health status, age or past claims history. For example, in Singapore, diagnosed pre- diabetics and Type 2 diabetics between ages 30 and 65 can now buy targeted critical illness policies that replace medical examinations with five questions, simplifying their access to cover.