Growth prospects for re/insurance in many of the major Association of Southeast Asian Nations (ASEAN) markets are supported by strong socio-economical fundamentals, but the industry must find new ways to overcome common “growth bottlenecks”, according to a report from Moody’s Investors Service.
The report highlighted challenges such as the expansion of distribution capabilities, low protection content in mainstream products, shallow bond markets that limit investment options, and the need to improve the capacity to withstand shocks through tightening risk-based capital (RBC) regimes.
These factors were true for all the markets Moody’s examined, which included Singapore, Thailand, Malaysia, Indonesia, Vietnam and the Philippines, although the pace and quality of insurance sector growth varied significantly by geography.
“The strong fundamentals include urbanization, a growing middle class, low insurance penetration, and the lack of a sufficiently funded welfare system,” said Frank Yuen, a Moody’s Assistant Vice President and Analyst.
“However, the pace and quality of such growth will vary to reflect differences in market maturity, financial depth, demographics and policies, and the insurance industry in these countries are finding different ways to overcome common growth bottlenecks,” he added.
ASEAN governments are aware of the widening protection gaps in the region, which they have attempted to address through new policies and economic incentives for insurance coverage, particularly in medical and retirement coverage.
Economic developments in the region will also continue to support the growth of non-life premiums, Moody’s said, with rising infrastructure investment supporting property and fire insurance in Indonesia, and catastrophic loss coverage growing in the Philippines.
Insurance distribution throughout ASEAN is dominated by agencies and brokers, which the report found to be uneven in quality, coverage and geographical reach, although countries like Singapore have been increasingly relying on financial advisors as an important channel.
Similarly, Malaysia has launched tools such as a balanced scorecard to increase productivity for agents and bank staff selling insurance products.
Nonetheless, Moody’s expects that it will still take time and investment for insurers to strengthen the distribution capabilities of their banking partners to offer higher value products.
