International speciality insurer Markel Asia says growing regulatory protectionism in the reinsurance industry could defeat the purpose of reinsurance, which is to transfer and to diversify risk.
In dealings with financial regulators across the Asian region, Markel Asia points to the growing trend of regulatory protectionism in reinsurance and its potential pitfalls.
Financial regulators typically work to expand consumer choice and insurance penetration, they act as financial policeman to enforce regulations, ensure insurers have the financial strength to meet their obligations, and help grow their domestic insurance and reinsurance industries.
Regulators hope developing an indigenous reinsurance market will result in more local capital and premium, but capital and premium funds held onshore are likely to be invested in local equities, bonds and property, which are all vulnerable to rapid devaluation in the event of a major catastrophe.
“What comfort the regulators have in knowing that assets are onshore is surely outweighed by the fear that these assets are exposed to the very perils that they are designed to protect against,” Matt Cannock, Principal Officer & Managing Director of Markel Asia, said.
The sophisticated markets of Japan and New Zealand focus on managing offshore reinsurers rather than outlawing them and Markel Asia stated that as asset values rise and insurance penetration increases in the newer, catastrophe-exposed Asian economies their regulators could benefit from following this example.
Brexit and Trump’s election will impact U.S. and UK carriers, Cannock commented these changes; “while challenging, often present great opportunities and approaching any new landscape with an open mind is paramount.
“Protectionist policies are very tempting for governments looking for the popular vote and for indigenous industries, but it should always be noted that no truly world-class company has ever developed in a ‘protected’ market.
“If insurers are to develop the customer responsiveness that other industry sectors show, we need to embrace competition and focus on getting better at what we do.”
With the pending impact of ‘Brexit’, Donald Trump, the profound effect on Thailand from the death of their King and the election of Duterte in The Philippines which Cannock said; “has given us all cause to remember the ‘Strongman’ governments in South East Asia in the 80’s and 90’s,” protectionism of markets appears to be a growing global trend.
But the changing times and political instability also bring a greater need for the re/insurance industry and Cannock highlighted political risk as another growth area in 2017; “The very reason for insurance is to give certainty, and in uncertain times this is more important than ever.”